COVID-19-Related Investment Schemes Anticipated
DFI Outlines What to Expect and Offers Guidance on How to Protect Yourself
By Wausau Times Staff
MADISON, Wis. – Amid the ongoing COVID-19 pandemic, the Wisconsin Department of Financial Institutions (DFI) is alerting investors to be on guard against an anticipated surge of fraudulent investment schemes, particularly in light of the upcoming federal relief payments to eligible individuals.
“In these extraordinary times the health and welfare of all must be our foremost concern, and that includes our financial health. Our primary focus remains on the protection of retail investors,” said DFI Secretary Kathy Blumenfeld.
DFI warns investors that fraudulent schemes launched amid the COVID-19 outbreak will not be elegant. “Scammers will begin perpetrating schemes that require little or no advance planning and minimal sophistication,” DFI Secretary Blumenfeld said. “Most will simply be old scams dressed in contemporary clothing.”
The North American Securities Administrators Association, of which DFI is a member, anticipates fraudulent investment schemes will rise as a result of the ongoing pandemic. “Scammers will be targeting investors, capitalizing on recent developments in the economy and preying on concerns about the regulated securities market,” said DFI Secretary Blumenfeld. “Investors must remain vigilant to protect themselves.”
In particular, DFI warned investors to be on the lookout for investments specifically tied to the threat of COVID-19. Bad actors can be expected to develop schemes that falsely purport to raise capital for companies manufacturing surgical masks and gowns, producing ventilators and other medical equipment, distributing small-molecule drugs and other preventative pharmaceuticals, or manufacturing vaccines and miracle cures. The schemes often appear legitimate because they draw upon current news, medical reports and social and political developments.
Scammers also will seek to take advantage of concerns with the volatility in the securities markets to promote “safe” investments with “guaranteed returns” including investments tied to gold, silver and other commodities; oil and gas; and real estate. Investors also can expect to see “get rich quick” schemes that tout quickly earned guaranteed returns that can be used to pay for rent, utilities or other expenses. These schemes also target retirees and senior citizens, falsely claiming they can quickly and safely recoup any losses to their retirement portfolios.
Retail investors must remain vigilant and protect themselves from new schemes tied to COVID-19 and recent economic developments. DFI suggests investors stay clear of anything sounding too good to be true, such as guarantees of high returns with no risk, and vet their investment professionals about their licenses and registrations.
Investors should also contact DFI with questions about any investment opportunity or the person offering it for sale before investing in the product. For more information, visit www.wdfi.org, or call DFI’s Division of Securities at (608) 266-2139.
Investor Beware of COVID-19-Related Investment Schemes:
•Private placements and off-market securities. Scammers will take advantage of concerns with the regulated securities market to promote off-market private deals. These schemes will continue to pose a threat to retail investors because private securities transactions are not subject to review by federal or state regulators. Retail investors must continue to investigate before they invest in private offerings and independently verify the facts for themselves.
•Gold, silver and other commodities. Scammers may also take advantage of the decline in the public securities markets by selling fraudulent investments in gold, silver and other commodities that are not tied to the stock market. These assets may also be attractive because they are often promoted as “safe” or “guaranteed” as hedging against inflation and mitigating systematic risks. However, scammers may conceal hidden fees and mark-ups, and the illiquidity of the assets may prevent retail investors from selling the assets for fair market value. The bottom line is there really are no “can’t miss” opportunities.
•Recovery schemes. Retail investors should be wary of buy-low, sell-high recovery schemes. For example, scammers will begin promoting investments tied to oil and gas, encouraging investors to purchase working or direct interests now so they can recognize significant gains after the price of oil recovers. Scammers will also begin selling equity at a discount, promising the value of the investments will significantly increase when the markets strengthen. Investors need to appreciate the risks associated with any prediction of future performance and recognize that gains in the markets may not correlate with the profitability of their investments.
•Get-rich-quick schemes. Scammers will capitalize on the increased unemployment rate. They falsely tout their ability to quickly earn guaranteed returns that can be used to pay for rent, utilities or other expenses. They also target retirees and senior citizens, falsely claiming they can quickly and safely recoup any losses to their retirement portfolios. Remember: if it sounds too good to be true, it probably is.
•Replacement and swap schemes. Investors should be wary of any unlicensed person encouraging them to liquidate their investments and use the proceeds to invest in more stable, more profitable products. Investors may pay considerable fees when liquidating the investments, and the new products often fail to provide the promised stability or profitability. Advisors may need to be registered before promoting these transactions and legally required to disclose hidden fees, mark-ups and other costs.
•Real estate schemes. Real estate investments may prove appealing because the real estate market has been strong and low interest rates have been increasing the demand for housing. Scammers often promote these schemes as safe and secure, claiming real estate can be sold and the proceeds can be used to cover any losses. However, real estate investments present significant risks, and changes to the economy and the real estate market may negatively impact the performance of the products.