It advertised an amazing 8% “safe” return on an investment that was touted as being as reliable as certificates of deposit, even though CDs at the time were paying only about 1%.
“How is that possible?” the client asked. She meant not only how can the investment achieve such a high, guaranteed rate of return, but also how can they advertise such a thing if it’s not true?
“I don’t know,” I answered on both counts.
Finally, I think we know the answer.
According to Financial Advisor magazine, the Securities and Exchange Commission (SEC) has reportedly charged a Boca Raton-based firm with defrauding 8,400 ‘Main Street’ investors in a fraudulent billion-dollar scheme.
While the firm owner enjoyed chartered private jets and luxury real estate properties, investors were allegedly scammed out of their hard-earned money.
The SEC claims that investors’ money was used to funnel $64.5 million in commissions to sales agents – many in Boca Raton – who pitched the fake investments offering 5 to 10% in interest as “low risk” and “conservative.”
Folks, let’s not forget the fundamental rule of investing. There is no such thing as a free lunch.
Repeat after me. When comparable investments pay 1-2%, there is no such thing as an 8% “safe” return. Anyone who offers you a deal like that is trying to scam you.
Here are some other tips to keep you safe:
♦ Do your homework to make sure you are dealing with trusted and reputable advisors. SEC reports suggest a little research might have raised several red flags for investors.
♦ Run, do not walk away, when you are being pitched investments by heavily-commissioned salespeople. The headline in Investment News reporting on the scam says it all: “Massive investment fraud fueled by slick marketing, hot dinners.” Don’t sell out for something as puny as a fancy steak dinner.
♦ Still not sure if an investment or salesperson is legit? Be smart and get a second opinion from a professional you trust. They might raise questions or additional issues you overlooked. The opinion means more if it comes from a fee-only fiduciary who’s objective, unbiased, and not compensated by sales commissions.