By Michelle Singletary
Thursday, May 17, 2007

If you like keeping lists, there's one you need to clip and post on your refrigerator door.

It's the top 10 ways people get involved in bogus or inappropriate investments. The list is compiled by the North American Securities Administrators Association. Some of the scams are old school. They've been around a long time and yet they continue to trap investors.

My favorite -- and I use that word sarcastically -- is the "prime bank scheme." In this con, promoters get people to think that there are high-return, low-risk financial instruments sold by elite overseas banks. These prime banks do not exist. Using complex terms and promising that their funds are guaranteed, promoters collect money that they then often use to pay for cars, vacations, homes and risky investments that the investors have no idea about.

"No one is immune to these schemes," said Bob Webster, the spokesman for NASAA. "We put out this list every year to try to keep one step ahead of the con artists. We want people to remain vigilant."

And the problems don't just involve phony investment opportunities, according to NASAA, which represents state and provincial securities regulators in the United States, Canada and Mexico. Increasingly investors are being talked into putting their money into legitimate investment products that are unsuitable for them. Securities professionals are supposed to take into account a person's age, financial situation and investment objectives when recommending financial products. That doesn't always happen.

For instance, regulators have issued warnings about the sale of variable annuities, which are tax-deferred investment products wrapped with insurance. While variable annuities are appropriate for some, they are not appropriate for everyone, especially not senior citizens. These long-term products often levy surrender charges for early withdrawals, typically within six or eight years after purchase.

New to the NASAA list this year are real estate investment schemes. This type of fraud is following the news, Webster said. Its promoters are playing on the popularity of real estate investing and the belief by novice investors that this type of investment is always a sure thing. Some investors have paid the price.

Recently, regulators in Missouri issued a warning to investors after seeing an increase in complaints about bogus real estate investments. In one case, an unregistered individual allegedly fooled a Missouri resident into investing more than $250,000 in nonexistent commercial real estate. In another case, a couple is accused of selling the same 50 percent ownership stake in a property to six different investors.

As oil and natural gas prices rise, so does the creativity of people selling investments in alternative energy companies. Most of these investments are highly risky and not appropriate for smaller investors, according to NASAA.

Most recently, the Oregon Department of Consumer and Business Services revoked the securities license of a stockbroker for advising more than a dozen of his clients -- many of them in their 70s and 80s -- to become general partners in risky oil and gas ventures.

Regulators are also seeing an increased push to get individual investors involved in foreign exchange, or forex, trading. I've been hearing lots of commercials touting it on the radio. Forex contracts involve the right to buy or sell a certain amount of a foreign currency at a fixed price in U.S. dollars. The price of foreign currencies can be extremely volatile. You gain or lose money as the exchange rate of the currency fluctuates. While this type of investment may be appropriate for governments or large institutional investors, it is highly risky and perhaps too complex for the average investor.

The Commodity Futures Trading Commission and NASAA issued a warning this month about this type of trading and the potential for fraud. In a typical con, an investor may be persuaded that with just a $5,000 initial outlay, he or she can make tens of thousands of dollars in a few weeks or months. But the $5,000 is never invested in the foreign currency through a legitimate dealer. If you think you are a victim of this type of fraud, call the CFTC toll free at 1-866-366-2382. You can also go to the commission's Web site at http://www.cftc.gov.

If you are unsure about a particular investment pitch, contact your state securities regulator. You can find that information by calling NASAA at 202-737-0900 or going online to http://www.nasaa.org. Click on "Contact Your Regulator." NASAA has also introduced a new podcast with investor protection news and information. You can hear the podcasts by going to the association's Web site. The Securities and Exchange Commission also offers tips for checking out brokers and investment advisers on its Web site at http://www.sec.gov/investor/brokers.htm.

Year after year, as these top 10 lists show, the scams get more creative and harder to spot. This is just a reminder to investigate before you invest.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.