September 12th, 2011
Money flooding into gold has raised the price of bullion and coins, and also spawned scams. If you dont want to buy the metal itself, there are exchange-traded funds and publicly held mining firms.
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Given the eye-popping price of gold these days, lots of folks are getting tempting invitations to invest in gold-mining stocks, gold coins, precious metal futures and plain ol nuggets.
But those glittery get-rich-quick offers often turn out to be as dazzling as a dirty lump of coal.
Investment scams often ride the coattails of hot news topics, says FBI white-collar crime expert Kevin Baker in Sacramento.
Thats why, as gold prices tripled to more than $1,800 an ounce in the past year, there has been a similar surge in the number of blogs, websites, Twitter messages and YouTube ads touting gold-related investments, says the Financial Industry Regulatory Authority, or FINRA.
Some offer free lunch seminars to entice potential investors. Other gold-buying offers arrive by email, phone or word-of-mouth recommendations from friends.
Some may be legitimate; many are not.
Con artists are using the run-up (in gold prices) as a hook to part investors from their money, said Gerri Walsh, FINRAs vice president for investor education, in a statement. Investors should think twice before investing in any gold investment promising exponential returns or any company that claims it is a buyout target for other mining companies.
In the Sacramento area, the FBIs Baker said ongoing fraud investigations involve the purported value of dormant gold mines in California and Nevada. While declining to discuss those cases in detail, Baker said the rise in gold prices has led to legitimate and not-so-legitimate efforts to resurrect some of those mines.
In the last year, gold scammers have tripped up unsuspecting investors everywhere.
In December, a Laguna Niguel man and two Southern California companies were accused in a federal civil complaint of running a $5.5 million Ponzi scheme that allegedly duped more than 80 investors who thought they were investing in precious metals futures. Instead, the defendants allegedly siphoned off more than $1.1 million for their own personal spending.
Last summer, the SEC charged six people with running a $300 million gold mining fraud that persuaded more than 3,000 investors to put in their savings, retirement funds and even home equity. In sales seminars, the Canadian and U.S. investors were told they could expect annual returns of 18 percent to 36 percent.
And this spring, the U.S. Commodity Futures Trading Commission, or CFTC, filed three separate complaints against companies and individuals, based in either California or Florida, who are accused of defrauding investors of millions in precious metals scams.
How to avoid getting ensnared?
Theres an old investment adage: If it sounds too good to be true, it probably is. Listen to and read carefully any investment proposals, especially those that promise low-risk-but-high-return deals.
FINRA warns investors to be wary of any pitch on a gold investment that:
&x95; Promises quick, exponential growth, such as a Nevada mining company stock that promised to turn $10,000 into $384,600.
&x95; Touts a gold company as a prime buyout target.
&x95; Claims a tie between the companys stock performance and rising gold prices.
&x95; Uses scare tactics, such as fears of inflation or economic meltdown.
&x95; Makes speculative claims based on a companys proximity to an existing gold reserve.
&x95; Involves a company that changed its name or trading symbol to align more closely with gold. For example, FINRA said, some companies that currently claim to engage in gold mining were originally incorporated to sell private golf-course opportunities or urban health spas.
Never rely solely on information received in an unsolicited x or email. Its easy for slick promoters to make exaggerated claims about new products, lucrative contracts or a companys revenue, profits or future stock price, says FINRA. Be wary of boasts about significant mineral reserves or mining operations in foreign countries where its difficult to verify the claims.
And, if considering buying precious metals without taking physical delivery, the CFTC advises being wary of hidden commissions, loan rates, interest charges or storage fees. Too often, no metal is actually purchased or stored and investors lose everything.
Why would a total stranger tell you about a lucrative investment opportunity? Because there is no such opportunity, says FINRA. In many scams, those who tout a fraudulent companys stock are either corporate insiders, large shareholders or paid celebrities who will profit if the stock price goes up.
Read a companys SEC filings, if available, to verify information youve heard. But note: Just because a company has registered or filed reports with the SEC, theres no guarantee its a sound investment.
Today its gold scams; tomorrow, financial fraudsters could hide behind another newsy topic.
We see this time and time again, said the FBIs Baker.
Shortly after 9/11, for instance, he said, a Sacramento-based investment scam preyed on Americans fears by offering buy-ins to a company developing cial-recognition technology that purportedly could thwart future terrorist attacks. Unfortunately for investors, the company did not actually exist and investors lost millions of dollars.
Similarly, during the recent housing bubble, phony real estate investments lured plenty of gullible investors.
Going forward, Baker said the FBI anticipates more financial scams focused around trendy topics, such as green energy, foreign currency trading and other precious metals.
If you want to invest in gold, there are legitimate exchange-traded funds and publicly traded companies that can be part of a diversified investment portfolio. And gold bullion or coins also can be part of your holdings.
But dont overdo it. As FINRA warns, a heavy concentration of gold investments can leave investors &x85; at risk of losing a substantial percentage of their money.
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Have a personal finance question? Call The Bpersonal financeees Claudia Buck at (916) 321-1968.
&149;Read more articles by Claudia Buck
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