State and federal regulators continue to warn investors about new investment 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 from 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 before joining, according to the FTC.
If you are presented with a money-making proposition promising easy earnings or extraordinary returns, you need to be skeptical.
A friend of mine recently allowed Georgia-based Financial Independence Group LLC to give a presentation to a group at her home. She was so skeptical that she asked me to sit in.
What I heard at that meeting raised a dozen or more red flags for me and for 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.” For details about his company, Lee said 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, made 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.
She showed illustrations of how home owners could earn hundreds of thousands of dollars by investing the equity from their home.
However, using equity to invest is highly risky, said Joseph P. Borg, president of the North American Securities Administrators Association and director of the Alabama Securities Commission.
“In my opinion this is dangerous unless a lot more information was given and a proven record was shown,” Borg said.
Contact Michelle Singletary c/o The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com.
