Events in Japan have fraudsters pulling increasing number of Forex scams
State securities regulators warn that the high-profile international events in Japan and the Middle East in recent months could spawn even more foreign-currency scams, a type of fraud that was already on the rise.
North American Securities Administrators Association Inc. President David Massey said foreign-currency trades and sales of other “exotic” investments such as structured products, some exchange-traded funds and secondary-market offerings are increasing.
The frauds involve complicated financial products that investors don't understand. Nevertheless, they're often drawn to the products by promises of high returns. Marketers, on the other hand, play down the financial risks of the investments — if the investments actually exist, that is.
“By the time investors realize there is something wrong, the crooks have left town with their money,” said Mr. Massey, who also serves as North Carolina's deputy securities administrator.
In many cases, the scammers have a script in front of them, waiting to fill in the details with whatever events are hot in the news that day. Case in point: The recent fluctuation in the Japanese yen is precisely the kind of hook that fraudsters will play up, he said.
“The average investor doesn't have the experience with foreign-currency trading,” Mr. Massey said.
Regulators also warn that structured products — which are fine for institutional investors who can analyze and make sense of them — are not a place retail investors should look for returns.
Marc Minor, a former New Jersey securities regulator who last week became bureau chief of New York's Investor Protection Bureau, said in regulators in his state are still seeing a large number of auction rate securities cases, as well.
In Nebraska, schemes involving oil and gold — both commodities that are trading at high market prices — also are on the rise, said Jack Herstein, assistant director of the Bureau of Securities in that state.
The regulators are in Washington for a NASAA conference on financial regulatory reform.
