Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 24, 1995 TAG: 9509220129
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: GENE THARPE COX NEWS SERVICE
DATELINE: ATLANTA LENGTH: Medium
Answer: Investment fraud.
They were elements of investment frauds that took millions of dollars from investors before being uncovered and prosecuted.
The North American Securities Administrators Association estimates that Americans lose $10 billion annually to investment fraud.
The frauds work, in large part, because they are not ``stereotypical'' investment frauds - some glib-talking hustler on the phone offering oceanfront lots for sale in New Mexico.
On the surface, phony deals may seem legit, particularly for unwary or inexperienced investors.
Take the toy ploy, for example. Toys are big business and can return big profits for people and companies that develop popular toys. Witness the Mighty Morphin Power Rangers.
But Toys-N-Motion Inc., operated by Clifton Deal of Ellijay, Ga., was a loser for its investors. Georgia Secretary of State Max Cleland said Deal received $141,300 from investors and told them it would be used to develop new toys. Rather, he diverted more than 70 percent of the investors' money for his personal use.
This month, Deal pleaded guilty to 10 counts of violations of the Georgia Securities Act and 15 counts of theft. He is awaiting sentencing.
District Attorney Roger Queen, who prosecuted the case, said that Deal ``for years had passed himself off as an inventor and developer of toys.''
Then there's James D. Risher, who purchased a historic home in Cobb County, Ga., stating he planned to renovate it and convert it to condos. He lured investors to help with the renovation and share the profits when the condos were sold.
The renovation was begun and - although never completed - Risher used the house as bait to attract investors in the renovation of other old homes. ``His offering materials were professionally prepared, his financial statements, including costs and projected earnings, were believable,'' Cleland said.
Risher provided investors with architectural drawings showing details of each home he claimed to own and planned to renovate.
``But Risher never completed a single project and never paid in full for a single home,'' Cleland said, although he received millions of dollars from investors. Risher pleaded guilty to securities violations and theft charges in 1990 and was sentenced to state prison.
Such investments are frauds from the beginning, or go sour after the original promoters get in too far over their heads.
Legitimate investments may consist of stocks, real estate, bonds, precious metals or many other ventures that are intended to earn money for you.
Phony deals can consist of the same types of investments, but with a twist - the swindlers, not the investors, walk away with a pocketful of cash.
But the growing sophistication of investment fraud makes it more difficult to spot scams before you lose money.
Potential victims are visited by a well-dressed swindler talking about derivatives or wireless cable TV or other legal - and potentially lucrative - investments that they have twisted into frauds.
The best way to protect yourself is to ask questions, then check out the answers.
If you can't get satisfactory answers, forget the investment.
Ask all the questions you want, but these are six to ask for sure:
Are you registered with the State Corporation Commission or other state regulatory agency?
Would you explain your investment proposal to my attorney or banker? If the answer is something along the lines of, ``Normally, I would be glad to, but there just isn't time because we have to move fast with this investment,'' say no to the offer. Honest brokers are willing to answer all legitimate questions.
What risks are involved in the investment? Except for obligations of the U.S. Treasury, which generally are considered risk-free, all investments involve some degree of risk. Remember that if the salespeople had knowledge of some sure-fire investment that would make big profits for them, they wouldn't be talking to anyone else.
Can you provide references? Don't settle for talking with someone who claims to be a happy investor (who might be a fellow con artist), but insist on a bank, a brokerage firm, or some other well- known company that is readily available for you to contact.
Would you supply a written document explaining the investment? This is required of most investments, and if there's any reluctance in providing it, save your money. The offer is very likely a swindle.
Would you give me the names, addresses and phone numbers of your firm's major officers? Although many people who operate investment frauds often change their own names and the firms' names, the indication that you are a cautious, even suspicious, person who probably will check on them will cause many swindlers to forget you and look for another victim. State regulatory officials have such information for registered corporations, so compare that with what you get from the person trying to sell you on an investment.
by CNB