Hawaii Commissioner of Securities Unveils Top 13 Investor Traps for 2006

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HONOLULU – Hawaii Commissioner of Securities Corinna Wong today unveiled a list of the 13 most common investor traps for 2006.

The traps below are listed alphabetically; however, personal information scams, variable annuities, and high yield investment schemes are the greatest potential threats to investors in the state of Hawaii this year.


The top 13 threats to investors are:

*1. ”Affinity Fraud.” Con artists frequently target members of closely knit religious, political, or ethnic groups. Their pitch is essentially, “since I am like you and believe like you, you can believe in me and in what I say.”

*2. ”Churning.” An abusive sales practice in which unethical securities professionals make unnecessary and/or excessive trades in order to generate commissions. Most churning occurs where a broker has discretion to trade the account, and does not need prior approval from the client to complete a transaction.

*3. ”Equity Indexed Certificates of Deposit.” Remember the days of FDIC-insured, bank-issued certificates of deposit with guaranteed principal and interest? Equity Indexed CDs are not the same product. These hybrid securities products offer an interest coupon payment or return that is based on a stock market index, usually the S&P 500. Returns are not FDIC insured, and are dependent on the performance of the stock market.

*4. ”Oil and Gas Investment Fraud.” Oil and gas deals are complicated investments that generally require a significant investment, often requiring a minimum deposit of thousands of dollars. Increasingly, these deals are being promoted via the Internet with claims of attractive tax advantages.

*5. ”Personal Information Scams.” The first step in separating a victim from his or her money is convincing the victim to divulge personal financial information. Con artists frequently style themselves as “senior specialists” or adopt a pretext of preparing “living will” or a “living trust.” A pretext that is of current concern to insurance and securities regulators is the offer to help senior citizens qualify for prescription benefits by preparing forms. In the guise of filling out forms, the con artist may ask unnecessary questions about personal financial assets, which provides a comprehensive laundry list of what is available for the taking.

*6. ”High Yield Investment Schemes (Prime Bank Schemes).” These schemes often promise high-yield, tax-free returns. Investors are told that only very wealthy people can get the benefit of these programs but the promoter is able to make it available to the victim. Sometimes the victim is required to execute a “confidentiality agreement” in order to invest and is told not to consult an attorney, accountant or financial planner.

*7. ”Pump and Dump Schemes.” Unethical broker-dealers frequently “pump” up the value of low-priced securities traded on the NASDAQ “pink sheets” and then “dump” the stock after na