Home State Corporation Commission warns Virginians of top investor threats

State Corporation Commission warns Virginians of top investor threats


economic-forecast-headerThe advent of new products and technologies can sometimes spell risk for investors, the State Corporation Commission warned. Among the emerging threats facing investors in 2015 are schemes involving digital currency, binary options, and stream-of-income investments.

“Many of the top threats facing investors involve new products in classic schemes, often fueled by the Internet,” said Ron Thomas, director of the SCC’s Division of Securities and Retail Franchising. “The biggest threat is unlicensed agents selling unregistered products to unsuspecting investors.”

The following list of top threats facing unwary investors throughout North America was compiled by the Enforcement Section of the North American Securities Administrators Association (NASAA), of which the SCC is a member.

Emerging threats include the following:

  • Digital Currency & Cybersecurity Risks – Digital currencies are emerging as trendy way to pay for goods and services. Last year’s rapid increase in the price of Bitcoin – a popular digital currency – sparked considerable public interest and media attention, creating a fresh market for securities offerings tied to digital currencies. However, unscrupulous promoters may try to capitalize on this popularity by illegally offering securities tied to digital currencies. Even legitimate securities offerings tied to digital currencies may present considerable risks to the investing public, including risks associated with volatility and demand for the units, the anonymity associated with the use of certain digital currencies, and the threats posed by hackers using malicious software to compromise network security systems.
  • Binary Options – These are securities in the form of options contracts that have a payout that depends on whether the underlying asset – for example, a company’s stock or a stock index – increases or decreases in value. Investors betting on a stock price increase either receive a pre-determined amount of money if the value of the asset increased over the fixed period, or no money at all if it decreased. With this all-or-nothing payout structure, investors can easily lose their entire investment.
  • Stream-of-Income Investments – Investors looking for monthly returns are being enticed to invest by companies that introduce investors to individuals selling a stream of income, such as pension payments or government disability payments. These investments can carry significant risks as laws may prohibit the assignment of the stream of income/benefits, the seller typically maintains the legal right to redirect the payment, and if the seller does redirect the payment, the investor may be left with an unenforceable contract right. In addition, the benefits are contingent on the life of the seller. Veterans and disabled persons often are preyed upon to assign their benefits when they experience financially stressful times, selling much-needed future benefit payments at a significant reduction.

The SCC also warns investors regarding the following persistent threats: pyramid and other Ponzi schemes, Internet fraud (including social media and crowdfunding), real estate schemes, Reg D/Rule 506 private offerings, oil and gas investments, and affinity fraud.

Unregistered individuals continue to be the most common subject of enforcement actions by state securities regulators. “It pays to investigate before you invest,” Thomas said. “Independently verify any investment opportunity and the background of the person and company offering it. Make sure that the seller and the investment are properly licensed and registered in Virginia,” he said.

The Securities Division can provide detailed background information about those who are registered to sell securities or provide investment advice in Virginia, and about the products being offered. Contact the SCC’s Division of Securities and Retail Franchising toll-free in Virginia at 1-800-552-7945 or in Richmond at (804) 371-9051 or email the division at [email protected]. For additional information, visit the Securities Division’s website at www.scc.virginia.gov/srf or the NASAA website at www.nasaa.orgExternal Link logo.



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