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Whether it is through the internet or in the real world, investment scams are a fact of life. Here is a list of the top ten investment scams compiled by the California Department of Corporations:

1. Promissory notes The illegal and fraudulent sale of promissory notes and unlicensed broker-dealer activity by the sales agents marketing them. Some legitimate brokers are selling these promissory notes unaware or misunderstanding what they are selling.
   
   
2. Internet fraud Through the use of internet, scamsters are plying their trade by making illegal and fraudulent investment offerings, engaging in market manipulation, conducting insider trading and acting as unlicensed broker-dealers.
   
   
3. Telemarketing fraud Boiler room operations are not new. High pressured telephone sale tactics are being used to part innocent investors from their money by encouraging investors to invest into worthless investments.
   
   
4. Investment seminars and financial planner activity Many investment seminars and financial planner activity are carried on without the required licenses. The organizers of these seminars fail to disclose conflicts of interest and hidden fees and commissions. Many investment seminars are not sincerely aimed at aiding investors on how to invest but are trying to sell certain financial products in which the organizer has an interest.
   
   
5. Affinity group fraud Affinity group fraud is the fraud against religious, ethnic and professional groups by members of these groups or persons claiming to provide assistance to these groups. Members of these groups are lulled into a false sense of security believing they can trust a group member who is merely a wolf in sheep’s clothing trying to encourage the purchase of a worthless investment.
   
   
6. Abusive sales practices by licensed broker-dealers and agents These practices include sales of securities to unsuitable investors, failure to disclose critical information, fraudulent offerings of securities and market manipulation of low-priced microcap offerings.

Click here to see the US S.E.C. warning article on "How to Avoid Investment Scams"

Click here to read about Prime Bank scams

Investment analysis scams

Many investors are attracted to small cap investments because of the opportunity of making a large, quick profit. Unfortunately, most sophisticated investors also know that with the hope of a great profit comes tremendous risk. In trying to reduce the amount of risk with any investment, investors seek out and rely on research, information and professional reports.

With the advent of internet, investors now have at the touch of a button and click of a mouse, research from the four corners of the investment world. This is especially important for the small cap investor who feels with all the available information now more than ever armed with the tools and analysis to invest in such small cap stocks.

However, among the information that is available is information which falls under the category of promotion in the form of investment letters and analysis. The unsophisticated and even more experienced investor will sometimes be fooled by what appears to be a professional report, when in fact they are faced with unadulterated advertisement. The wolf dressed in sheep’s clothing is no other than a paid promoter pushing a stock under the guise of independent research called the investment newsletter.

Many investment newsletter writers are being paid to write positive reports for the company’s that have paid them. In a world where many investors have to rely on professional reports to make important investment decisions, such biased and paid newsletters can lead the unwary down a path of misfortune.

Section 17(b) of the Securities Act of 1993 makes it unlawful for any person to publish or circulate any letter, investment service, or communication which describes a security without disclosing that the publisher is receiving compensation and the amount of such comopensation. The disclosure is not only required when the publisher is promoting the stock positively, but merely describing or discussing the stock.

So how does this section help the investor?. All investment newsletters must disclose any compensation that the publisher is receiving. Accordingly, you as the investor should be on the lookout for statements in newsletters which fail to fully disclose any compensation or disclose compensation paid to the publisher by the company he or she is recommending.