Maine’s Securities Administrator Judith Shaw, who serves as President of the North American Securities Administrators Association, released an annual list of top investor threats and urged investors to use caution when approached with unsolicited investments, especially those involving promissory notes, oil and gas deals, and real estate investment opportunities, including non-traded real estate investment trusts.

“Education and information are an investor’s best defense against investment fraud,” Shaw said, in a news release.  “These top threats to investors were determined by surveying members of NASAA to identify the five most problematic products, practices or schemes.”

Shaw cited the most often noted concerns identified by securities officials: 

1.      Unregistered Products and Unlicensed Salespersons:  The offer of securities by an individual without a valid securities license should be a red alert for investors.  Criminals also try to bypass stringent state registration requirements to pitch unregistered investments with a promise of “limited or no risk” and high returns.

2.      Promissory Notes:  In an environment of low interest rates, the promise of high-interest-bearing promissory notes may be tempting to investors, especially seniors and others living on a fixed income.  Promissory notes generally are used by companies to raise capital.  Legitimate promissory notes are marketed almost exclusively to sophisticated or corporate investors with the resources to research thoroughly the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal.  Most promissory notes must be registered as securities with the Securities and Exchange Commission (SEC) and the states in which they are sold.  Average investors should be cautious about offers of promissory notes with a duration of nine months or less, which in some circumstances do not require registration.  Short-term notes that appear to be exempt from securities registration have been the source of most – but not all – of the fraudulent activity involving promissory notes identified by regulators.

3.      Oil and Gas Investments:  Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations.  However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices.  Fraudulent oil and gas deals frequently are structured with the limited partnership (or other legal entity) in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states.  As a result, there is less chance of an investor visiting a well site or nonexistent company headquarters. Such a structure also makes it difficult for authorities to identify and expose the fraud.

4.      Real estate-related Investments:  Troublesome real estate-related investments identified by securities officials include non-traded real estate investment trusts (REITs), timeshare re-sales, and brokered mortgage notes.  These types of products often carry higher risk.  For example, non-traded REITs are sold directly to investors and are not traded on exchanges (as are conventional REITs).  Non-traded REITs can be risky and have limited liquidity, which may make them unsuitable for certain investors.

5.      Ponzi Schemes:  The premise is simple: pay early investors with money raised from later investors.  The only people certain to make money are the promoters who set the Ponzi in motion.

“Investors should always be wary of unsolicited financial advice or investment opportunities,” Shaw said. “Before making significant investment decisions, ask questions, make sure you understand the risks, and contact Maine’s Office of Securities for detailed background information about those who sell securities or give investment advice, as well as about the products being offered.”

Consumers are encouraged to contact the Office of Securities to check an adviser, salesperson or investment, or for other information related to investing, by calling 1-877-624-8551 (TTY: Please Call Maine Relay 711), by visiting the Office’s website (www.investors.maine.gov), or by writing to Maine Office of Securities, 121 SHS, Augusta, ME 04333-0121.

The Office of Securities is part of Maine’s Department of Professional and Financial Regulation, which encourages sound business practices through the oversight of insurers, financial institutions, creditors, investment providers, and numerous professions  More information is available at www.maine.gov/pfr.