A 400 Percent Return In 7 Days? Riiiight.
State and federal regulators continue to warn investors about new scams, especially during a time like this, when people are desperately looking for better returns in a declining market.
But two tried-and-true scams -- pyramid and multilevel marketing schemes -- keep trapping investors.
Almost all pyramid promotions are illegal because members earn money primarily by getting people to pay to participate in the operation. The pyramid eventually collapses when new members can't be recruited.
The Federal Trade Commission, the Securities and Exchange Commission and the Better Business Bureau have issued warnings about multilevel marketing plans. With a legitimate multilevel marketer, participants make money selling products or services and by getting commissions on sales made by their own recruits, not just by paying a fee and getting others to pay a fee to join the organization. It is difficult to distinguish legitimate multilevel marketing schemes from pyramid schemes, which is why you need to be very cautious about joining, advises the FTC.
Authorities are also concerned that both types of schemes frequently prey on the trust and friendship that exist in groups of people who have something in common. This type of "affinity fraud" is listed by the North American Securities Administrators Association (NASAA) as among the top 10 investment traps.
If you are presented with a money-making proposition promising easy earnings or extraordinary investment returns, you need to be skeptical. Check everything out, and never accept glib answers.
A friend of mine recently allowed Financial Independence Group to give a presentation to a small group at her home. She was so skeptical that she asked me to sit in.
What I heard at that meeting raised red flags for me and for the law enforcement officials I contacted afterward.
Frederick C. Lee Jr., the founder of Financial Independence, said in a telephone conversation that his company "teaches money movement strategies." When I asked for details about his background, Lee said: "My rï¿½sumï¿½ is not important. I'm just a colored boy trying to share information."
For details about his company, Lee told me to contact his attorney. The attorney, Brian M. Douglas of Atlanta, did not answer e-mailed questions and did not return phone calls.
Angela Garnett, a regional manager for Financial Independence, conducted the presentation at my friend's house. She was pleasant and animated, ending a lot of her sentences with an exaggerated "riiiight."
"If I can show you how to make a 400 percent return on your money in seven days, would you be interested?" Garnett asked the group.