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Top Investor Threats For 2012 According To DFI

On August 21 the Wisconsin Department of Financial Institutions (DFI) released a list of the top 10 financial products and practices that threaten to trap unwary investors.  DFI has added 3 new threats this year because they are concerned these practices will be used to exploit new federal laws intended for job creation and economic recovery.

 According to Patricia Struck, Administrator of the Division of Securities:

DFI is particularly concerned about two provisions of the recently passed JOBS Act that could unwittingly open the door to fraud. These include provisions to expand crowdfunding to allow businesses to raise money from investors and to allow the general solicitation and advertising of private placement offers. According to Struck, the top 10 investor threats are:

  • Crowdfunding and Internet offers (new)
  • Use of self-directed IRAs to mask fraud (new)
  • EB-5 investment-for-visa schemes (new)
  • Oil and gas drilling programs
  • Promissory notes
  • Ponzi schemes
  • Real estate investment schemes
  • Reg D/Rule 506 private offerings
  • Affinity fraud
  • Gold and precious metals

Full DFI press release

Examples of crowdfunding include sites like used by entrepreneurs to fund their new business ideas and used by nonprofits to fund charitable causes.  It is estimated about $250,000,000 has been raised using these sites and others like them.  There are no government security forms to file meaning small startups and charities do not need to pay high legal fees in order to begin raising money.  Many legitimate concerns use crowdfunding to get started.

DFI fears unscrupulous types will setup shell companies to lure in unwary investors and skip out leaving no paper trail for regulators to follow.  

Self-Directed IRAs may provide respectability to hollow investments.   Some investors mistakenly think if an investment can be used in an IRA then the government has approved this investment.  This of course, is not true.

EB-5 investment-for-visa schemes are methods for investing outside the U.S. 

Investors should always independently verify investment opportunities.  Investors who think they have encountered fraudulent practices should contact DFI at 608-266-1064.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant