The stock market continues to provide investors with plenty of volatility. For most investors, the past few weeks have been emotionally unsettling if not downright scary. Under these types of conditions, some investors start to look for profit opportunities that are more secure than the financial markets. Unfortunately, in an attempt to find good returns with less volatility some investors become victims of fraudulent investment schemes.

Variations of most of these schemes have exited for decades, but many have gained new life with the growth of technology and the internet. To help you recognize some of these schemes, here are a few that the Utah Department of Commerce have projected will be prominent in 2007.

Real Estate Investments. While real estate is generally considered a safe investment, there are plenty of deceptive practices. Specifically, the department warns consumers against scams that use your credit score to borrow money for real estate development or “flipping.”  Other schemes include lending money that will be used to finance high interest home loans that promise interest returns of 2% to 4% a month.

Free Meal Seminars for Seniors. These types of invitations are quite common in the financial industry. And while many are legitimate, the department warns that many of the promoters claim to be certified experts. In reality, “the certifications mean nothing more than the person has been trained on what sales pitches are most effective with seniors.”

Prime Banks. These schemes claim that money can deposited in special prime banks that finance transactions around the world. In one case a promoter claimed he had been appointed as a mediator by the International Monetary Fund. Investors were promised profits of more than 100% per week and that there was zero risk because the money always remained in their account at the prime bank. In reality, prime banks do not exist.

Hot Penny Stock E-mails. These try to convince investors of the urgency of buying a specific stock. Usually they will indicate that while the current price of the stock is less than $1 a share, the projected target is $3 to $5 and the price is expected to explode at any time. This is just a new version of the old pump and dump type scam.

Foreign Currency Trading. This type of trading is notoriously risky and dominated by large banks and professional traders. Promoters create the illusion of success by having an office with multiple computer screens tracking financial markets and by creating fictitious account statements showing huge returns. In cases the department prosecuted in 2006 the promoters all claimed special expertise but really used some or all of the investor money for personal expenses. The promoters are usually not licensed in securities.

Oil and Gas Investments. Beware of scams where you are invited to become an investor in a new oil well or a newly discovered oil reserve. Also expected are scams that promote new technology for extracting oil from tar sands or shale. Before making any investments in this highly technical arena, Investors should make certain the securities are state or federally registered.

Promissory Notes or Guarantees. These are commonly offered in a manner that creates the appearance that they are solid or are backed by collateral. In reality, a note is just a promise to pay and provides no protection of the company or person offering the note is in a precarious financial position.

While we all wish there were secure investments that provided high returns with no risk or volatility, such products do not exist. Every week we hear stories in our office about people who have lost significant amounts of money through schemes like those described above.

Protecting yourself from such scams is really fairly simple.

• First, you should always investigate a questionable investment by calling your state securities division and asking whether or not the offering is registered. ALL securities sold in any state must be registered. That includes hedge funds, private placement offerings, penny stocks, etc.
• Second, you need to find out if the person selling the product is licensed. Again, you can find out by calling your state securities division office.
• Finally, the person trying to sell you the investment should provide a written prospectus or memorandum.

Please don’t assume you are too smart to be taken in by one of these frauds. Many of those we see who succumb are savvy, seasoned investors. The lure of easy wealth is something that appeals to the greed in all of us.

I’ve purposely avoided talking about current market conditions this week because there really isn’t anything new to say. Just continue to hold tight because this correction should be over fairly soon. Have a great spring weekend.
F.S.