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SMARTER INVESTING

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					 SMARTER INVESTING
                         Fraud and Investment Scams



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                 Table of Contents
Introduction ……………………………………………………………… 3


Penny Stock Fraud ……………………………………………………… 4


Tax Shelters ………………………………………………………………                6


10 Do’s and Don’ts for Investors …….………..……….………... 8


Fraud and Abuse in Financial Planning …..……….……….….. 10


Internet Fraud …………………………………………………………… 17

Fraud Aimed at Older Americans ………………………………… 20


Unsuitable Investments ……………………………………………            23


Cold Calling ……………………………………………………………… 25


Portrait of a “Boiler Room” ……………………..………………… 33
                      SMARTER INVESTING
                                  Fraud and Investment Scams



Scams Involving Treasury Securities ………..………………... 34


How To Detect Counterfeit Money ………….. ……………..….. 41


Investing in Rare Coins …………………………………………..…            43


The IRS Does Not “Approve” IRA Investments …………….. 49

Securities Investor Protection Corporation (SIPC) .……… 51


Federal Deposit Insurance Corporation (FDIC) .……………. 52


Debit and Credit Card Fraud ………………………….…………… 55


"4-1-9" OR "Advance Fee Fraud" ……………………………….. 61


Pyramid Schemes …………………………………………………….. 65


Ponzi Fraud ……………………………………………………………..                  66

Affinity Fraud …………………………………………………………... 67


How to Find Public Information About Individual Banks … 70


Stock Fraud Via Answering Machine Messages ……………… 72


Viatical Settlements …………………………………….…………….. 74


Promissory Note Fraud …………………………………….………… 80


Automatic Debit Scams ………………………………….…………… 83

"Pre-IPO" Investing …………………………………………………… 86




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"High Yields" …………………………………………………..………… 88


Prime Bank Note Fraud ………………………………………………. 90


Letter of Credit Fraud …………………………………………………. 93


Franchise and Business Opportunities ………………………..… 95


Securities and Exchange Commission (SEC) Contact Info.. 98

Other Contact Info …………………………………………………….. 99




Introduction: About This Book
This book has many authors, and I am not one of them. I am an aggregator
who has compiled the good work of dozens of writers and researchers into a
volume I hope you find to be educational, interesting, and easy to read.

My sincere thanks to the fine organizations and individuals who have
generously granted permission for the use of their material, or whose
material is part of the public domain, including The U.S. Securities and
Exchange Commission, The Wall Street Journal, The U.S. Bureau of the
Public Debt, The U.S. Secret Service, The U.S. Federal Trade Commissio n,
The U.S. Department of Justice, Securities Investor Protection Corporation
(SIPC), Federal Deposit Insurance Corporation (FDIC), The Federal Reserve
Bank of San Francisco, The U.S. Federal Bureau of Investigation, The U.S.
Postal Inspection Service, The Office of California Attorney General, The U.S.
Office of the Comptroller of the Currency, and The Pennsylvania Securities
Commission.

I’m hope this book helps you become more savvy and less susceptible to
investment fraud, without discouraging you from legitimate investment risk
appropriate to your personal circumstances and preferences.

                                                           - MG



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Penny Stock
THE PENNY STOCK GAME:

Penny stocks are generally traded at very low prices hence, their name and
promote unproven or nonexistent products offered by novice or dubious
managers. For speculative investors, the penny stock game has an allure
similar to that of casino gambling.

Too often, these investors don't know or don't care that a "gold-mining
property" is under a lake, as long as they are told that their cheap stock soon
will enjoy a healthy run-up in value. The reality is that losses related to
penny stocks are measured in the hundreds of millions of dollars.

Meanwhile, securities regulators have disciplined scores of dealers for
violations of state and Canadian provincial securities laws. Participants have
included convicted felons, targets of securities investigations, reputed crime
figures and principals who faced serious charges of insider misdeeds.

The president of one computer firm turned out to be a 15-year-old high
school freshman. The vice president was 16; his father had been convicted
on two counts of perjury in connection with an earlier probe by the U.S.
Securities and Exchange Commission.

HOW PENNY STOCK FRAUD WORKS:

In the classic example, a promoter assigns himself millions of shares of stock
at a fraction of a cent per share or at no cost. Next, he prepares a
prospectus, a document containing all of the facts about the offering. His
prospectus discloses that his product has little or no chance of success, and
the stock is offered at 5 or 10 cents per share.

The promoter often uses a "boiler room," a bank of telephones tended by
high-pressure salespeople who tout stocks while making outrageous
promises. This artificially inflates demand for the offering. After the share
price reaches several dollars, the "smart money" sells out, and the price
plummets. Novices don't know what is happening and can't sell in time to
avoid losing most or all of their money. The company goes out of business,
with the promoter lining his pockets with the stock proceeds in the company
treasury.




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Of course, the securities of some legitimate companies trade at low prices.
But discriminating between legitimate offers and a penny stock fraud can be
difficult.

HOW TO PROTECT YOURSELF:

No matter what the salesperson tells you, obtain a prospectus and read it.
Anything said that contradicts disclosures in the prospectus should raise a
red flag warning you off the investment. Some key sections to look at:

   · Management    - this describes the experience and background of
   managers. Make sure, for example, that a railroad engineer is not running
   a biomedical research company.

   · Financial health -if not already deeply in debt, many penny stock
   companies have little or no capital. They will use investor money just to
   keep the doors open. Read the financial statement and accountant's
   report and, if you don't understand them, find someone who does.

   · Dilution - promoters often obtain huge numbers of shares for free.
   Charts will show how much those shares will dilute the value of investor
   shares. As a rule, 75 percent or more dilution is cause for concern.

   · Use of proceeds - this is the key to determining the operation's
   legitimacy. This tells how much money will be used for mineral
   exploration, for instance, and how much will be used for suspect,
   unproductive purposes such as loans to officers and directors, back taxes
   or unmet payroll.

   · Product - read this part carefully to learn the stage of development  if
   any of the invention. Often, this will contain double-talk indicating that
   the product is "about to be tested" or "may be tested" or that money for
   testing is being raised. One company's prospectus revealed that it "has
   engaged in no business whatsoever and has no operating history" and
   that it could "provide the investor with no information whatsoever as to
   intentions."

   · Transactions with management/conflicts of interest - watch out for
   interest-free loans to principals or provisions for them to sell property to
   the company at inflated prices. This could indicate that the company is
   giving its money to the promoters in less-than-arm's-length transactions
   and that there won't be much left to develop the property or product.




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   · Litigation and investigations - this section discloses any lawsuits filed
   against the corpo ration and promoters and, often, any government
   investigations.

Find out if a security or its seller is registered with the Pennsylvania
Securities Commission (1-800-600-0007) or the U.S. Securities and
Exchange Commissio n. However, don't rely on registration as an indication of
government endorsement of a company's soundness or the advisability of an
investment.

It is up to the individual to judge based on the prospectus and other reliable
sources whether to invest.

                                     (Source: Pennsylvania Securities Commission)
http://www.psc.state.pa.us/investor/ibulletin/penny.html

                                       **

Tax Shelters
The last quarter of the year is the time when individuals often look for ways
to save money on their taxes. It's also the time when they are approached
by sellers of tax shelter investments, some of which are questionable at best
and fraudulent at worst.

Many advertisements appear in newspapers and magazines or are sent
through the mail. They offer investment plans touting tax savings equal to
many times the costs of the investment.

Of course, investors have access to many legitimate ways of saving on taxes.
But the Internal Revenue Service warns against "abusive" tax shelters, which
are entered into with the sole expectation of avoiding taxes. These shelters
often involve movies, master recording tapes, real estate, lithographs, books,
gold and precious metal-mining ventures.

The promoter might make over-reaching promises about the investment's
tax advantages. The promoter also may offer to file amended tax returns on
the investor's behalf or to prepare a current-year return. For some time, the
investor will believe in the program often referring friends to the promoter
as he will receive these benefits in advance.

Promoters often tout the tax advantages of investing but fail to tell investors
all of the tax consequences. For example, the value placed on the property




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may far exceed its true fair-market value, or there may be no real market for
the property.

HERE'S HOW AN ABUSIVE TAX SHELTER MIGHT WORK:

An investor puts $5,000 into an oil-and-gas well drilling venture, in exchange
for the promise of a 5 -to-1 tax write-off and a $12,500 tax saving. The
investor also must sign $20,000 in recourse notes to the promoter.

The investor deducts $25,000 from his income on his tax return and claims a
$1,000 credit. Meanwhile, the promoter fails to drill any wells, sells the
recourse notes to a bank and disappears with the cash.

Upon hearing complaints, the IRS investigates and disallows all deductions.
The investor also loses his $5,000 cash investment and must pay the bank
the $20,000 loan plus interest.

               When the IRS successfully challenges an
               abusive scheme, the investor loses
               deductions and has to pay penalties and
               interest to the government on top of large
               loan repayment obligations.


HOW TO PROTECT YOURSELF:

The essential question to ask is whether the deal, aside from possible tax
savings, is a good investment. If there is little chance of making money other
than with tax write-offs, do yourself a favor and avoid the plan. Also, tax
advantages are not the same for all taxpayers; they differ according to each
individual's financial situation.

Ask these questions:

   · How long has the company been in business? Obtain all relevant
   information about the company. Ask for offering brochures, copies of
   agreements and other documents in advance and obtain everything in
   writing.

   · What kind of record does it have in sim ilar tax-shelter programs?

   · Has there been an appraisal of the property's fair-market value? If not,
   don't invest until you obtain an independent, third-party appraisal.


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   · Has tax counsel been retained and a tax opinion issued? If so, ask for a
   copy. If not, don't invest until the tax status is clear.

   · How will the property be developed? Is the marketing company related
   to the promoter? If so, this could indicate a conflict of interest that would
   be scrutinized by the IRS. In some cases, the marketing company is a
   sham.

   · What kind of periodic reports of revenue and expenses will be provided?
   Will these reports be audited by an independent certified public
   accountant?

   · Is the tax shelter registered with a governmental securities agency? Are
   the promoters licensed as securities dealers and sellers?



                                      (Source: Pennsylvania Securities Commission)
http://www.psc.state.pa.us/investor/ibulletin/taxshelter.html

                                        **

10 Do's and Don'ts for Investors
BE CAUTIOUS:

   1. Be cautious when strangers offering get-rich-quick schemes contact
      you with "cold" phone calls, e-mails or unannounced visits to your
      home. The phone calls could be "boiler room" scams, in which the
      operators rent offices with impressive addresses. They hire unlicensed
      salespeople to work banks of phones, calling individuals from lists the
      promoters buy. The promises of fast profits usually don't come true.
   2. Question fantastic promises of extraordinary returns on your
      investments.
   3. Shy away from high-pressure sales techniques requiring hurried
      money commitments. Some fraudulent schemes have used
      messengers to pick up investors' checks almost as soon as they ended
      a phone call.
   4. Avoid investments in which the seller has little or no written
      information about the company or its past performance. Then again,
      even printed materials can be fakes. Read all materials carefully, ask
      questions and check with experts.




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 5. Be wary of investments that are sold on the basis of rumors, tips or
    supposedly inside information.
 6. Ask the seller to give you written information about the investment,
    including the prospectus (also called an offering circular) and financial
    statement. Such information is required for many types of
    investments, including stock and franchise offerings, limited
    partnerships and mutual funds. Read this information before you sign
    a purchase order to pay for an investment.
 7. Consult with your registered stockbroker, banker, lawyer, accountant
    or real estate agent. Check with the Better Business Bureau, the
    Pennsylvania Securities Commission (1-800-600-0007) or a
    knowledgeable friend or family member.
 8. Contact government agencies to find out if a company or individual is
    licensed to do business or has any history of violating the law. Failure
    to register or a history of trouble with authorities should raise a red-
    flag warning to prospective investors.
 9. Deal with established businesses with reputations that are known in
    the community.
 10.When in doubt, wait. Even legitimate investments carry the risk of
    losing money.

TOP TEN INVESTMENT SCAMS:
 1. Internet The Internet is like a big city, with good neighborhoods and
    bad neighborhoods. Investors should be careful about taking advice
    from strangers. Never invest based on a "tip" found on the Internet
    without doing your own research.
 2. Investment seminars Be wary of expensive seminars conducted by
    self-appointed gurus implying you can get rich quick. It's usually the
    gurus who get rich, charging admission and selling their books and
    audiotapes.
 3. Affinity groups Members of closely knit religious, political or ethnic
    groups are targeted by con artists of the same background. The crooks
    take advantage of our natural trust of people who are like us. They use
    advertising to identify potential victims, often with offers of
    employment or financial advice.
 4. Abusive sales practices Investors should hang up on aggressive cold-
    callers.
 5. Telemarketing New "boiler rooms" feature high-pressure telephone
    sales operations that are always open and sell fraudulent investments.
    Promoters try to capitalize on the headlines, from the Year 2000
    computer bug to the Asian currency crisis to breakthroughs in
    computers or biotechnology. Forms of protection: screen phone calls
    with an answering machine or hang up on cold-callers.



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   6. Promissory notes A growing area of fraud, these notes are supposedly
      insured and backed by real assets. In fact, they are backed only by an
      often worthless promise to repay. Some notes are issued on behalf of
      companies that don't exist. Even if a company is legitimate, investors
      should realize that the reason these notes are offered to small
      investors is that banks and venture capitalists have declined to invest.
   7. Viaticals One of the hottest new investment products and one of the
      riskiest viatical contracts are interests in the death benefits of
      terminally ill patients, such as AIDS and cancer victims. Because
      predicting death is so uncertain, these investments are extremely
      speculative.
   8. Entertainment Con artists focus on investors hoping to hit it big with a
      stake in the next Hollywood blockbuster, cable television shows, video
      games and other entertainment products.
   9. Ponzi/pyramid schemes Always in style, these swindles promise high
      rates of return. The only people who make a killing are the promoters
      who create them. Inevitably, later investors lose their money when the
      house of cards collapses.
   10.Franchise offerings Promoters target people attracted by the prospect
      of owning their own business. States have taken actions relating to
      inadequate disclosure and fraud involving franchises, which often are
      marketed at business opportunity and franchise trade shows.

                                    (Source: Pennsylvania Securities Commission)
http://www.psc.state.pa.us/investor/ibulletin/dosanddonts.html

                                      **

Fraud and Abuse in Financial Planning
Two decades ago, most financial services companies and professionals stuck
to their knitting. Brokers sold stocks. Real estate agents sold homes. Banks
accepted deposits and issued loans.

But the rise in the early 1980s of the financial planning industry, coupled
with deregulation, blurred the financial services picture. Today, an increasing
number of bankers, brokers, insurers, real estate agents and tax planners
operate under the common title of financial planner.

Investment advisers are no longer confidants of the well-heeled only.
Financial planning is promoted as a basic service of use to tens of millions of
middle-income Americans.

Considering that anybody can lay claim to the title of "financial planner,"
nobody knows for sure how many there are. However, when these planners


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advise clients on buying and selling securities, they must meet certain
competency requirements and register with the state where they operate. In
Pennsylvania, to find out whether your adviser has registered, call the
Commission at 1 -800-600-0007.

AVOIDING FRAUD:

While many honest, skilled people work as financial planners, state
enforcement actions suggest that the industry provides "deep cover" for a
substantial number of swindlers, con artists and abusive and unethical
promoters. Even in the legitimate part of the industry, agents and brokers
sometimes use the title "financial planner" to help them sell the products
they've always sold.

Some individuals calling themselves financial planners devote more time to
selling products than to financial planning. Some don't disclose relevant
events from their pasts, such as bankruptcies, run-ins with securities
regulators or felo ny convictions. Some moonlight, setting up an adviser
business while retaining ties to a brokerage, insurance agency or real estate
firm, allowing them to escape day-to-day oversight by supervisors. And still
others operate thinly disguised Ponzi schemes.



THREE MAJOR CATEGORIES OF FINANCIAL PLANNERS:


   · Fee-only/salaried - this adviser is either salaried or charges a certain
   amount to draw up a financial plan. He doesn't have products of his own
   to sell, such as stocks or real estate partnerships. The advantage is that
   the planner does nothing more than advise and is free from conflict-of-
   interest concerns related to commissions earned on investment products.

   · Fee/commission - many financial planners receive at least some of their
   income from commissions earned on the products used to implement the
   plans they draw up for their clients. While this arrangement generally
   reduces the direct cost of a financial planner to an investor, it creates
   obvious conflicts of interest. Does the planner give clients the products
   they really need? Or does the planner implement the plans that pay him
   the biggest commission?

   · Commission - some financial planners charge no fee but receive
   commissions on all the products they sell. The customer benefits from
   one-stop shopping. Also, the customer will have to pay a commission no



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  matter where the products are purchased. On the other hand, there's a
  strong possibility that the products aren't the most competitively priced or
  best performing when a commission is a key consideration.




KEY QUESTIONS TO ASK A FINANCIAL PLANNER

  1. What is your professional background? Look for a strong track record
     or education and job experience covering the bases of financial
     planning. Make sure that your planner stays current with the help of
     continuing education and training programs.
  2. How long have you been a financial planner? Look for an adviser who
     has some experience. A good rule of thumb is five or more years as a
     broker, insurance agent, accountant or lawyer. Look for someone who
     has logged at least three more years as a financial planner.
  3. How long have you been in the community? One of the basic rules of
     investing applies here. You always should deal with individuals you
     know or can check out through trusted friends, business colleagues,
     bankers or other professionals.
  4. Will you provide references from three or more clients whom you have
     counseled for at least two years? Get the names of several long-term
     clients and ask them about their level of satisfaction, returns and
     whether they are staying with the planner. Avoid planners who
     pressure you to rely on the word of one or two new clients, who may
     be primed by the promoter to sing his praises.
  5. May I see examples of plans and monitoring reports you have drawn
     up for other investors? Pay particular attention to the frequency and
     quality of the reports, as these updates would be vital to recharting
     your financial objectives.
  6. How will you make money on my plan? Be blunt. Ask the planner how
     he would profit from his relationship with you. If there's a heavy
     reliance on commission income, keep that in mind when the planner
     recommends that you buy specific investment products.
  7. Have any enforcement actions been taken against you? It doesn't hurt
     to ask. The Pennsylvania Securities Commission (1-800-600-0007) w ill
     provide details of any enforcement files related to the adviser.

MINIMUM SERVICES A FINANCIAL PLANNER SHOULD PROVIDE:

  · A clearly written, individualized financial plan, including balance sheet
  and projected cash flow for at least one year. The plan should define your
  financial objectives and the steps you will take to achieve them.




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   · A discussion of the amount of risk you are willing to assume in order to
   achieve your goals.

   · Specific suggestions for improving your cash management.

   · A detailed explanation of the assumptions underlying the plan, including
   projected rates of interest and inflation.

   · A range of investment choices, with the pros and cons of each.

   · Additional advice, if needed, from lawyers, accountants and
   stockbrokers.

   · A specific schedule for monitoring your financial plan.



5 COMMON WARNING SIGNS OF A FRAUDULENT FINANCIAL
PLANNER

   1. Promises of unrealistic above-market rates of return, such as 20
      percent or 40 percent annually.
   2. An indication that the investment is guaranteed and can't result in a
      loss for the investor.
   3. Suggestions that the investment is too complex to be understood and
      that total faith in the promoter is a must.
   4. An unclear or unstated investment purpose, such as a blind pool for
      investing in the stock market at the planner's discretion.
   5. An exotic element in the sales pitch, such as the involvement of an off-
      shore bank, top-secret technology or inside information from Wall
      Street titans.

                                     (Source: Pennsylvania Securities Commission)
http://www.psc.state.pa.us/investor/ibulletin/financial.html

                                       **


Choosing a Stockbroker
Millions of Americans from all walks of life own shares in America's public
companies. Still, investing in the stock market is a complex business. In




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many cases, a good stockbroker or other financial specialist can be an
essential element of success.

You can do many things to establish and maintain a good relationship with a
broker; in turn, you will increase the likelihood of realizing your investment
goals.

YOUR GOALS:

Are you primarily interested in long-term growth, steady income, tax
savings, quick profits or some combination of each? Your financial situation is
your best guide to choosing an investment.

Growth, through the long-term appreciation of capital, might be your choice
if you have good income, or if you are relatively young and are willing to take
greater investment risks for larger gains down the road. Conversely, if you
are living on a fixed or retirement income, your main goal might be regular
income through dividends and interest while protecting your principal.

Various books and financial publications available in the business section of
your public library may help you to develop an investment strategy. Many
schools offer low-cost courses on the basics of personal investing.

Be realistic. Remember that no investment is risk-free and, as a rule, the
greater the potential return, the greater the risk. Other questions to ask
yourself:

   · Do you have sufficient cash reserves in a safe place, such as a federally
   insured savings account, that can be reached easily in an emergency?

   · Do you have adequate life insurance?

   · Can you afford to lose the money you plan to invest? Even if you have
   substantial assets, that doesn't mean every investment is appropriate for
   you. You should only invest in securities you understand and only if the
   risk is within your comfort range.

CHOOSING YOUR BROKER:

You need to consider whether you want a full-service or a discount broker.
Discount brokerage employees are generally paid a straight salary, and they
typically charge lower commissions than their full-service counterparts. Full-
service brokers, on the other hand, receive commissions based on the




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number and size of transactions in your account. Generally, only full-service
brokers will recommend specific stocks or investment strategies.

Brokerage services are highly personal, and the quality depends on both the
firm and the individual you select. Ask for recommendations from friends who
are successful investors, business colleagues, or your lawyer, accountant,
banker or other professional whom you trust. Still, someone else's broker
might not be suitable for you, given differing financial situations, needs and
philosophies.

When you first visit a brokerage, you may want to meet with the office
manager. He may be able to steer you to a broker who's particularly
knowledgeable in your areas of interest. When you meet with a broker, treat
it as an interview. Don't be intimidated by an im pressive office or a fast-
paced, smooth, but superficial sales pitch. Ask questions and listen to the
answers. No questions are dumb or silly when it comes to understanding how
your hard-earned money would be invested.

You may be asked questions about your net worth, employment, annual
income, investment objectives, risk tolerance, tax bracket, and depth of
investment experience. Don't mistake the line of questioning for an intrusion
on your privacy: Various stock exchanges and the National Association of
Securities Dealers may require the broker to use "due diligence" when
opening new accounts.

The broker must know his customer. You can help your broker help you by
updating him whenever you experience a significant change in your financial
situation or investment goals. The more your broker knows about you, the
better recommendations he can make.

Take your time in selecting a broker and establishing a relationship of mutual
trust, respect and understanding. Don't hesitate to ask a question or to say
"no" to a recommendation that doesn't fit your investment strategy.

OTHER STEPS TO TAKE:

   1. When interviewing brokers, ask for:

         · A brochure that describes the investment options offered by the
         firm.

         · A list of services provided. Copies of the firm's specific
         recommendations over the past year.




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         · A copy of the firm's commission rates. (Active investors may be
         able to negotiate lower-than-standard rates.)

   2. When a broker recommends a security, it should be based on sound
      reasoning rather than a hunch or a tip.
   3. The kind of service and the amount of it depends on the rules that
      you and the broker establish when you open your account. The
      frequency with which your broker calls should be consistent with the
      size of your portfolio. For instance, if you own five stocks that are
      invested for long-term conservative growth, you probably won't need
      to speak with your broker more than one or two times each year. An
      account with 20 or 30 growth stocks might require several calls per
      week.
   4. Make sure that the firm's products, services, recommendations and
      commissions are compatible with your goals and that the broker you
      choose will help you reach those goals.
   5. Find out whether the brokerage is a member of any national stock
      exchanges, the National Association of Securities Dealers or the
      Securities Investors Protection Corp. The association is a self-
      regulating organization; its members include most broker-dealers in
      the United States. Securities Investors was created by Congress to
      insure the cash and securities of its members' customers in case a
      member falls into bankruptcy.
   6. Before you deal with any broker's office, you also may wish to contact
      the Pennsylvania Securities Commission at 1-800-600-0007. The
      Commission will verify whether the firm and broker are licensed to do
      business in the Commonwealth or have been disciplined by any
      regulatory agency.

IF YOU HAVE A PROBLEM:

Most dealings between customers and brokerages are straightforward and
trouble free. Sometimes, problems arise, such as excessive trading called
"churning" in your account, unauthorized trading, unsuitable
recommendations, or failure to execute trades or deliver securities.

If your broker confirms stock trades that you don't recall approving, call him
right away. Erroneous trades usually can be straightened out if they are
caught in time. However, if you wait until the mistakenly purchased stock
performs poorly, your delay can be used as evidence that you agreed to the
trade. Read and understand the monthly or quarterly account statements
that you receive from the brokerage.

Be sure that nothing occurs in your account without your permission. If you
don't understand something, or if it's inconsistent with your intentions,


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contact your broker or the brokerage's office manager immediately. Failing
there, you should notify the Pennsylvania Securities Commission. Meanwhile,
send a letter detailing your problem to the brokerage's chief compliance
officer.

If the problem remains unresolved, you may want to pursue arbitration or
legal action. Arbitration offers a less costly and generally faster means of
resolving your claim than traditional litigation. However, you effectively give
up your right to pursue the matter through the court system. The National
Association of Securities Dealers and the New York and American stock
exchanges, among others, offer arbitration services.

                                     (Source: Pennsylvania Securities Commission)

http://www.psc.state.pa.us/investor/ibulletin/stockholder.html

                                       **


Internet Fraud
Cyberspace was once inhabited largely by government agencies and
academics linked through a decentralized computer network now known as
the Internet.

The Internet's rise has coincided with a booming economy, one fueled in
large part by consumer spending. At the same time, employers have shifted
more responsibility for retirement savings to their employees. The economy
and investors have found common ground in cyberspace.

With its instant access, speed and relatively low cost, the Internet
understandably has drawn legitimate commerce. Some companies sell
securities through their Web sites. Some offer online brokerage and banking
services.

The Pennsylvania Securities Commission was among the first state securities
regulators to recognize the Internet's potential for good and evil.
Technological innovation attracts legitimate businesses hoping to cash in on
the cost savings. Invariably, this leads to the rise of illegitimate enterprises
hoping to take advantage of the unsuspecting.

An investor can't see who's behind a particular Web site or a "tip" on an
Internet bulletin board. Familiar trademarks and logos can be altered and
consumer confidence manipulated by illegal tampering with trademarks of
legitimate companies.


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Just as Internet commerce escalates, so too does Internet securities fraud.
"Prime bank" frauds, for example, promise investors high rates of return on
fictitious financial instruments often called "prime" bank notes by the scam
artist and traded by nonexistent international banks. In "pump and dump"
schemes, insiders with cheap shares post glowing reports about a company
to "pump" up the price solely for the purpose of "dumping" their shares at
the inflated price on unsuspecting victims.

How an Investor Bulletin Board Scam Might Work

"Is anyone out there following Company X," reads the first message on an
online bulletin board. Responses follow.

"I heard that Company X is about to make a major announcement. E-mail
me or call this toll-free number to get an information package."

"I spoke to Company X's CEO, who confirmed details of next month's big
news. I've bought 10,000 shares. Look for share price to double in next
month! Get it now!"

"Big news is just around the corner. We hear from a friend who has visited
Company X that it is going to be even bigger than we thought. There's still
time to get in."

"Short-sellers are in the market! Keep the faith . . . This will bounce back.
The smart money will use the price as an opportunity to buy more and dollar
average."

The original message in this hypothetical bulletin board might be posted by
an unscrupulous company, market-making brokerage or large shareholder.
Subsequent messages could be left by the same person using an alias or by
accomplices posing as disinterested outsiders.

The goal would be to interest unwary investors, who then drive up the stock
price through a buying surge. The schemers stand to make substantial profits
when they sell their cheap shares. after the price collapse, talk of the
company ceases and the schemers move on, hyping a new stock.

How to Protect Yourself

Beware and be realistic when it comes to the Internet:

   1. Don't expect to get rich quickly. The online world is filled with timely
      and accurate information that can make you a smarter investor. Alas,
      it's also home to a growing amount of investment fraud and abuse.


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     Keep your excitement and expectations in perspective: evaluate
     information as you would any magazine article, television report or
     whispered hot tip.
2.   Don't assume that your investment bulletin board is policed. Most
     online computer services take a hands-off approach to claims made in
     message postings. Even the services that minimally police are
     swamped by the volume literally millions of messages each month.
     Nothing prevents a con artist from posting pitches for a swindle. Often
     the only check on abusive messages is "flaming" by other users.
3.   Don't buy thinly traded, little-known stocks on the basis of online
     hype. These are the stocks that are most susceptible to manipulation.
     Unlike blue chips and other stocks with substantial numbers of shares
     available for buying and selling (called "float"), the price of low-volume
     stocks can be moved with relatively small strategic trades. This is why
     online hype usually involves previo usly unknown securities, often for
     companies involved in mining or high-technology. Even if a hyped
     stock moves up, proceed with extreme caution, as this just may be
     part of the overall manipulation. Always do your own research using
     reputable sources, many of which are available online.
4.   Don't act on the advice of a person who hides his identity. Many
     computer bulletin boards allow people to use aliases and nicknames.
     This is intended to protect privacy, but it also can be exploited by fast-
     buck artists. You may end up dealing with an undisclosed broker,
     investor or company insider intent on driving up (or down) the price of
     a stock through false information or baseless speculation that is
     difficult or impossible to disprove. Don't assume that two or more
     people talking up a stock are two distinct people.
5.   Don't get suckered by claims about "inside information," including
     pending news releases, contract announcements and products.
     Investment bulletin boards and discussion groups are crammed with
     hot tips about impending developments sure to send a stock soaring in
     value. Just because these tips appear in cyberspace does not mean
     that they are exempt from federal insider-trading laws. It is extremely
     unlikely that genuine insider information will be broadcast on an
     investment bulletin board.
6.   Don't assume that all claims have been proved by information or
     visits. People who hype stocks online make all sorts of claims about
     visiting companies, inspecting mining operations and having
     conversations with company officials. You might not be able to verify
     who is making these claims, much less whether any of the information
     is true or the supposed research took place. A tactic of investment
     schemers is to talk up companies located in remote corners of the
     globe, where it is impossible for you to visit or obtain meaningful
     information.




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   7. Don't forget to look for potential conflicts of interest. A growing
      number of online stock analysts receive cash or shares in exchange for
      glowing comments about the companies in questio n. Although federal
      law requires analysts to prominently disclose this fact, others make
      little or no mention of it. Make sure you always know why someone is
      so high on an investment opportunity.
   8. Don't forget to make sure that an investment opportunity and the
      person promoting it are properly registered with the Pennsylvania
      Securities Commission (1-800-600-0007). Laws designed to protect
      small investors from fraud and abuse do apply in cyberspace. Scam
      artists often fail to follow state requirements.

http://www.psc.state.pa.us/investor/ibulletin/ifraud.html
                                   (Source: Pennsylvania Securities Commission)



                                     **

Fraud Aimed at Older Americans
Older Americans are the No. 1 target of con artists. The files of the
Pennsylvania Securities Commission and other state securities agencies are
filled with tragic examples of seniors who have been cheated out of savings,
windfall insurance payments and even equity in their homes.

DEFENSE TIPS:

To prevent more people from becoming victims, the North American
Securities Administrators Association offers these defense tips:

   1. Don't be a courtesy victim. Older Americans often extend hospitality to
      phone callers and visitors to their homes. Con artists will not hesitate
      to exploit the good manners of a potential victim.

      You are under no obligation to stay on the phone with a stranger who
      wants your money. It is not impolite to explain that you are not
      interested and hang up. Save your good manners for friends and
      family members not swindlers.

   2. Check out strangers. Too many older Americans make the mistake of
      trusting strangers when it comes to their finances. Say "no" to
      anybody who presses you to make an immediate decision, giving you
      no opportunity to check out the salesperson, the firm or the
      investment opportunity. Before you part with your hard-earned



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   savings, get written information about the investment, review it and
   make sure that you understand all of the risks.

   A favorite tactic of telemarketing con artists is to develop a false bond
   of friendship. Swindlers know that many seniors welcome phone calls,
   even those from strangers. If you are dealing with a stockbroker or
   financial planner in person, don't be sw ayed by offers of unrelated
   advice or assistance that are merely efforts to develop a sense of
   friendship and dependence. Don't seek companionship from someone
   whose only real interest is to get his hands on your money.

3. Always stay in charge of your money. Beware of any financial
   professional who suggests putting your money into something you
   don't understand, or who urges you to leave everything in his hands.
   Constant vigilance is a necessary part of being an investor.

   If you understand little of the investment world, educate yourself or
   involve a family member or a professional, such as your banker or
   lawyer, before trusting a stranger who wants you to turn over your
   money.

4. Never judge a person's integrity by the sound of his voice. Successful
   con artists sound professional and can make the flimsiest investment
   deal appear as safe and sound as putting money in the bank.

   Some swindlers combine their sales pitches with polite manners,
   knowing that many seniors equate good manners with integrity.
   Remember that the sound of a voice particularly on the phone has no
   bearing on the soundness of an investment opportunity.

5. Watch out for salespeople who prey on your fears. Con artists know
   that many seniors worry about outliving their savings or losing their
   financial resources to a catastrophic event, such as hospitalization. It
   is common for swindlers and abusive salespeople to pitch their
   schemes as ways to build up life savings to the point where fears
   aren't necessary.

   Fear and greed can cloud your good judgment and leave you in a
   worse financial posture. An investment that is right for you will make
   sense because you understand it and feel comfortable with the level of
   risk involved.

6. Exercise particular caution if you are an older woman with no
   experience handling money. Many women who are in their retirement
   years received little or no education about handling money when they


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      were young. They often relied on their husbands for major money
      decisions. As a result, older women particularly those who received
      insurance payments for the death of a husband are prime targets for
      con artists.
   7. Monitor your investments and ask tough questions. Too many seniors
      compound the mistake of trusting unscrupulous salespeople by failing
      to keep an eye on the progress of an investment. Insist on regular
      written and oral reports. Look for signs of excessive or unauthorized
      trading of your funds. Don't be swayed by an assurance that such
      practices are routine or in your best interests.
   8. Look out for any trouble retrieving principal or cashing out profits.
      Because unscrupulous promoters pocket the funds of their victims,
      they often go to great lengths to explain why an investor's savings are
      not readily accessible. In many cases, they pressure the investor to
      roll over non-existent profits into new and even more alluring
      investments, further delaying the point at which the fraud will be
      uncovered.

      If you are not investing in a vehicle with a fixed term, such as a bond,
      then you should receive your funds or profits within a reasonable
      amount of time.

   9. Don't let embarrassment or fear keep you from reporting investment
      fraud or abuse. Older Americans who fail to report that they have been
      victimized often hesitate out of embarrassment or fear that they will
      be judged incapable of handling their own affairs. Con artists know
      about such sensitivities and even count on these fears to prevent or
      delay the point at which authorities will be notified of a scam.

      Most money lost to investment fraud isn't recovered beyond pennies
      on the dollar. However, if you recognize that you have been victimized
      and speak up promptly, you might recover some or all of your funds.

   10.Beware of "reload" scams. Most older Americans deal with a finite
      amount of money that is unlikely to be replenished in the event of
      fraud or abuse. Faced with a loss of funds, some seniors will go along
      with another scheme a "reload" in which the con artist promises to
      make good on the original funds that were lost. Too often, the result is
      that unwary seniors lose whatever savings they have left in the wake
      of the original scam.


                                   (Source: Pennsylvania Securities Commission)
http://www.psc.state.pa.us/investor/ibulletin/olderamer.html




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                                      **

Unsuitable Investments
THE CONCEPT IS SIMPLE:

The concept is simple enough. Stockbrokers are professionals who should
understand the ins and outs of securities markets.

All too often, individual investors have limited knowledge and little time to
master the intricacies of the rapidly expanding and increasingly complex
world of investments. Therefore, brokers bear a legal and ethical burden to
act in the best interests of the investor when offering and executing
investment recommendations. Courts and arbitratio n panels enforce brokers'
responsibilities.

A "know your customer" rule forbids brokers from placing an investor in an
investment for which he is "unsuited" in terms of depth of investment
experience, net worth, annual income, investment objectives and other
factors.

For instance, there was a tragic case involving a 55-year-old widow in Dallas.
The woman was a quadriplegic and considered unemployable. Her only
monthly income was her Social Security check. Her broker placed her in a
series of exotic options strategies. She lost more than $33,000 of her
retirement nest egg, leaving her with $2,700.

In another case, a 73-year-old Louisiana retiree had recently undergone
open heart and cataract surgery. He lost his $1 million portfolio when his
broker traded in "naked puts," which the retiree didn't understand.

Every customer who opens a brokerage account sits down with a sales
representative and fills out a customer agreement form. This also can be
done over the telephone. The customer must provide personal information
(name, address, phone number, spouse's name, employer, etc.), investment
objectives and the degree of risk he is willing to assume in an investment
strategy. Some investments are riskier than others. For example, options
trading is riskier than trading common stock. An investor interested in
trading options faces more probing questions than an investor interested in
trading a security. This process helps the brokerage satisfy suitability
requirements.




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HOW TO PROTECT YOURSELF:

Cautious investors should do their home-work to make sure that their
brokers make suitable investment recommendations:

   1. Be realistic in setting your investment objectives. You are the only
      person who knows the right answers for you. Are you seeking
      maximum protection of capital? Quick growth? Regular income? Tax
      savings? These questions might be easier to answer with advice from a
      lawyer, bank officer, accountant, registered financial adviser, reputable
      financial publication, adult education programs or college courses.
   2. Choose a broker who is compatible with your objectives. You will need
      a high degree of comfort with the firm and the sales representative
      you choose. Interview several brokers and question them in detail. Ask
      for a brochure describing the firm's investment alternatives and
      services, copies of specific recommendations over the past year and a
      copy of the firm's commission rates.
   3. Check out your broker. Contact your local Better Business Bureau and
      the Pennsylvania Securities Commission. If the broker has a
      disciplinary or enforcement history, it will be on file.
   4. Tell your broker about your financial circumstances. Be candid in filling
      out the forms used to determine the suitability of investments. Don't
      inflate your financial status to impress your broker. Incorrect
      information could result in your broker placing you in unsuitable
      investments that could cause devastating losses. In these
      circumstances, the losses would be your responsibility, not your
      broker's.
   5. Avoid investments you don't understand. Steer clear of anything you
      can't explain in simple, comprehensible language to yourself or a
      friend. Read about investments, ask questions of brokers and other
      professionals and attend courses.
   6. Risk no more than you can afford to lose. Gamble only with money you
      can afford to lose without hardship. If you can't afford to lose the
      money you have in the market, put it someplace else.
   7. Avoid "cold-calling" salesmen. Be wary of strangers who contact you
      by phone or e-mail, through unannounced visits or with junk mail.
      Remember that if it sounds too good to be true, it probably is.
   8. Recognize that there is no such thing as risk-free investing. Any claim
      to the contrary is a clear sign of an unscrupulous broker who may
      place you in an unsuitable investment. If you sense that risk is being
      soft-pedaled or misrepresented, seek a new broker.
   9. If you suspect an unsuitable investment, get your concerns on the
      record. If the investment strategy isn't appropriate for you, raise the
      matter with your broker orally and in writing. Keep a copy of the
      letter. If you aren't satisfied with the response, raise the matter with


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      the office manager. Forward your concerns to the firm's compliance
      office and the Pennsylvania Securities Commission (1-800-600-0007).


                                    (Source: Pennsylvania Securities Commission)

http://www.psc.state.pa.us/investor/ibulletin/unsuitable.html




Cold Calling
For many businesses, including securities firms, cold calling serves as a
legitimate way to reach potential customers. But sometimes serious trouble
and financial losses await you at the other end of the line. Dishonest brokers
may pressure you to buy a bad investment. Or the investment might be a
scam.

Whether the calls are annoying, abusive, or downright crooked, you can stop
cold callers. The law protects you by requiring cold callers to follow several
rules. But you need to take steps to take advantage of these rules and to
protect yourself.


FEDERAL RULES FOR COLD CALLERS
When people from the securities industry call to sell you something, the law
obligates them to:

(1)       Call Only Between 8:00 a.m. and 9:00 p.m. These time
          restrictions do not apply if you are already a customer of the firm
          or you've given them permission to call you at other times. Cold
          callers may call you at work at any time.

(2)       Say Who's Calling and Why Cold callers must promptly tell you
          their name, their firm's name, address, and telephone number,
          and that the purpose of the call is to sell you an investment.

(3)       Put You on Their “Do Not Call” List, If You Ask Every
          securities firm must keep a “do not call” list. If you want to stop
          sales calls from that firm, tell the caller to put your name and
          telephone number on the firm's “do not call” list. If anyone from
          that firm calls you again, get the caller's name and telephone
          number, note the date and time of the call, and complain to the
          firm's compliance officer, the SEC, and your state's securities


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          regulator. Further below, you'll find information on how to make a
          complaint.

(4)       Treat You With Respect Cold callers can't threaten, intimidate,
          or use obscene or profane language. They can't call you repeatedly
          to annoy, abuse, or harass you.

(5)       Get Your Written Approval Before Taking Money Directly
          From Your Bank Accounts Before investing, you should always
          get answers to the questions below and written information about
          the investment. If you do decide to buy from a cold caller, do not
          give your checking or savings account numbers to the broker over
          the phone. Brokers must get your written permission – such as
          your signature on a check or an authorization form – before they
          can take money from your checking or savings account.

(6)       Tell You the Truth People selling securities must tell you the
          truth. Brokers who lie to you about any important aspect of an
          investment opportunity violate federal and state securities laws.

                                  (Source: Securities and Exchange Commission)




Signs of Trouble

Honest brokers use cold calling to find clients for the long term. They ask
questions to understand your financial situation and investment goals before
recommending that you buy anything. While you may find their cold calls
annoying, honest brokers who follow the cold calling rules are acting within
their rights.

Dishonest brokers use cold calling to find “quick hits.” Some set up “boiler
rooms” where high-pressure salespeople use banks of telephones to call as
many potential investors as possible. These strangers will hound you to buy
stocks in small, unknown companies that are highly risky, or sometimes, part
of a scam.




High-Pressure Sales Tactics

      Aggressive cold callers speak from persuasive scripts that include
      retorts for your every objection. As long as you stay on the phone,


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they'll keep trying to sell. And they won't let you get a word in
edgewise.
“You'd hammer them. I always remember this one guy, I mean, I just
stayed on the phone for almost an hour, and he finally bought.”

                                              – A “boiler room” broker

Beware of brokers who pressure you to buy before you have a chance
to think about – or investigate – the “opportunity.”
“Stop right there! You're a businessman and you make decisions every
day. You didn't get where you are by being stupid . . . Let's confirm
the order now. OK?”

                                                – A “cold calling” script

Watch out for dishonest brokers who tell you about a “once-in-a-
lifetime” opportunity, especially when the caller bases the
recommendation on “inside” or “confidential” information.
“My broker said the company was in the process of buying this
100,000 watt radio station . . . The information wasn't on the street
yet, but once the information did go out, the stock was going to double
or triple.”

                                               – An investor in Virginia

Don't fall for brokers who promise spectacular profits or “guaranteed”
returns. If the deal sounds too good to be true, then it probably is.
“My broker was speaking of the AIDS epidemic and how much work
was going into it with the laboratories and so on. And this particular
company, working so close with it . . . he said the stock would go
through the roof. And he said it was absolutely a sure thing . . . It
would just continue to rise. Maybe as high as $20 or $30 per share.”

                                     – An investor in Virginia, who lost
                                       $70,000 while his broker made
                                         over $15,000 in commissions

Don't deal with brokers who refuse to send you written information
about the investment.
“I asked the broker not once but three times to send me some
information. 'Ed McMahon's been sending you information for years;
he hasn't made you any money,' was his reply.”

                                                   – A reporter for the
                                                      Washington Post


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The “Three-Call” Technique

      Some cold callers wait before turning up the heat. In their first call –
      the “warm -up” – they'll try to build your trust by describing their firm's
      past successes and the high quality of its research. The callers might
      ask permission to call again if an “exciting” deal comes along, but
      won't pressure you to buy.
      “I am invariably told these are not sales calls!! They assure me that all
      they want to do is pass along some information concerning their firm
      and track record, and will get back to me if and when something hot'
      comes along. When asked about such esoteric things as
      appropriateness, risk levels, risk tolerance, asset allocation and/or
      diversification, the topic is immediately changed back to their history
      of high returns for clients.”

                                                        – An investor in Illinois

      In their second call – the “set-up” – they'll whet your appetite, telling
      you about a fabulous deal they “think” they can get you into. In their
      third call – the “close” – they'll urge you to “buy now” or miss out.

Bait and Switch

      Dishonest brokers lure new customers by encouraging them to
      purchase well known, widely traded “blue chip” stocks. After you take
      the bait, they may pressure you to invest in small, unknown
      companies with little or no earnings. These stocks tend to be very
      risky and thinly traded, leaving more investors with losses than profits.

Paying Too Much

      Although they may not say so, dishonest brokers who push you to
      invest in a small, unknown company often work for firms that own
      large amounts of the stock. Their firm may have been involved in the
      company's initial public offering. Or the firm may “make a market” in
      the stock, which means it buys and sells the stock – sometimes called
      a “house stock”– for its own account. If only one firm or a small group
      of firms makes a market in the stock, the price can be manipulated
      and may not reflect the true value of the company. Dishonest brokers
      often pump up the prices of their house stocks until they get rid of
      their own holdings at high prices. But when they stop promoting the
      stock, the price falls, and investors lose their money.
      If you're not careful, you may pay too much for “house stocks.” Some
      dishonest brokers overcharge their customers by adding an
      undisclosed “mark-up” to the price the firm paid for the stock.



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       Although it's illegal for brokers to charge excessive mark-ups, some
       dishonest brokers mark up the prices of the stocks they sell by as
       much as 100% or more.



Finding It Hard to Sell

       Many investors find that once they buy a “house stock,” they can't get
       what they paid for it, even if they decide to sell right away. Or they
       find that their brokers simply won't sell the stock at all. Some firms
       follow “no net sales” policies where brokers can't execute orders to sell
       “house stocks” unless they find a customer to buy an equal number of
       shares. Other firms discourage brokers from selling “house stocks” for
       their customers by offering low – or no – commissions on those sales.
       Dishonest brokers often refuse to take – or return – phone calls from
       customers who want to sell.
       “Whenever I call my broker, I am told that he is in a meeting or out of
       the office.”
                                                 - A common investor complaint


       These brokers will use high-pressure tactics to persuade you to keep
       the stock. Or they will simply refuse to sell it.
       “When I told my broker to sell my portfolio, he said I can't do it . . . I
       can't explain why, but what I'll do is send you the stock and you sell it
       through another broker.”
                                                         - An investor in New York




                          Watch Out For:
                          High-Pressure Sales Tactics
                          The “Three-Call” Technique
                          Bait and Switch
                          Paying Too Much
                          Finding It Hard to Sell




                                     (Source: Securities and Exchange Commission)



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What Can I Do?

Report Abusive Cold Callers

     When cold callers use harassing, abusive sales tactics and lie to you
     about investment opportunities, they violate the cold calling rules and
     break federal and state securities laws. Don't let them off the hook! To
     complain about abusive cold callers, write down the name of the caller,
     the name of the firm, the date and time of the call or calls, what the
     caller said to you, and what you said to the caller. You can send your
     complaint to either the SEC or your state's securities regulator.


Tell Bad Cold Callers Not to Call Again

     Some salespeople just don't get it. No matter how many times you've
     told them “no thanks,” they keep calling. If you're annoyed by cold
     callers, stop them before they start their sales pitch. Tell the caller to
     put you on the firm's “do not call” list. If anyone from that firm calls
     you again, complain to the firm's compliance officer, the SEC, and your
     state's securities regulator.



Don't Warm Up To Bad Cold Callers

     Cold callers often try to “warm up” potential customers with flattery or
     friendship. They might try to put you off guard by chatting about your
     hometown or the local sports team. Or they might suggest they've
     spoken with you before. Don't fall for their tactics. And don't feel
     compelled to be polite or stay on the line. You don't have to listen if
     you don't want to, and you don't have to tell cold callers about
     yourself or your finances. Say “no, thanks” or “I'm not interested” –
     and then hang up. Don't wait for the caller to end the call. YOU are in
     control and can hang up at any time. If you get a fraudulent sales
     pitch, be sure to take notes and report the caller to the SEC and your
     state's securities regulator.



What If I Want To Invest?

     Never buy an investment based simply on a telephone sales pitch. A
     wise investor will always slow down, ask questions, get written
     information about the investment, and investigate the background of


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     the firm and broker. Take notes so you have a record of what the
     broker told you, in case you have a dispute later. Before making a final
     decision and handing over your hard-earned money, take the time to
     investigate. Follow these steps:



Call Your State's Securities Regulator, and Ask

     Is the investment registered?

     Is the broker licensed to do business in my state?

     Have you received any complaints about the broker pushing the
     investment or the broker's firm? Does either have a disciplinary
     history? Your state's securities regulator is the best source for this
     information because they give investors more information than other
     organizations about the brokers who do business in your state. States
     pull this disciplinary information from a national computer system, the
     CRD, the Central Registration Depository.

     Have you received any complaints about the stock, the company, or
     the company's managers?

     You can obtain a partial disciplinary history of the broker pushing the
     stock and the broker's firm by contacting the National Association of
     Securities Dealers' toll-free public disclosure hot-line at (800) 289-
     9999 or visiting their website at http://www.nasdr.com.



Ask Your Broker These Questions

     Is the investment registered with the SEC and the state securities
     agency where I live?

     How long has the company been in business? Is it making money? If
     so, how? What is its product or service? Have the people who are
     managing this company ever made money for investors in the past?

     Will you send me the latest reports that have been filed on this
     company? How can I get more information about this investment?
     Where does the stock trade? How can I get information about the
     stock's trading price? How easily can I sell? What price would I get if I
     decide to sell immediately?




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     How does this match my investment objectives? What is the risk that I
     could lose the money I invest?

     What are the costs to buy, hold, and sell this investment?



Do Your Own Research

     Get as much written information about the investment as you can. Ask
     for a prospectus, annual report, offering circular, and financial
     statements. Your local library may have resources that provide
     additional information about the company, such as lawsuits, liens, or
     recent credit reports. Compare the written information to what you've
     been told over the phone. Watch out if you're told that no written
     information about the company is available. If that happens, call your
     state's securities regulator immediately.



Get a Second Opinion

     Talk to a trusted financial advisor or your attorney. Consider calling
     another firm for a second opinion on the opportunity.



Monitor Your Investment

     After you've invested, watch your investment closely. Make sure your
     broker sends you account statements and written confirmation of all
     trades. Read these documents carefully to make sure they are correct.
     Be alert for any transactions you did not authorize.



Complain Promptly

     If you have any problems, complain promptly. Contact your broker's
     supervisor or the firm's compliance officer. If that does not resolve the
     problem, complain to the SEC or your state's securities regulator.
     Often complaints from investors alert us to wrongdoing in the industry
     and are the first step in stopping a bad broker or firm. By complaining
     early, you will have a better chance of getting your money back and
     protecting your legal rights.

                                 (Source: Securities and Exchange Commission)



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Portrait of a “Boiler Room”


 LANGUAGE: “Boiler Room” refers to firms and brokers who use
 high-pressure tactics to sell securities.



In a recent SEC enforcement case, “boiler rooms” were described this way:

“The firm was operating a classic boiler room. The brokers sat “cheek by
jowl” in a room the size of a basketball court. All of their desks were lined up
side by side in rows. The firm held mandatory sales meetings every morning
at 8:30 a.m. at which time
sales techniques were
demonstrated and scripts          “The people that run these scams ...
for the firm's “house stock”      have strong strategies. They come up
. . . were distributed.           with hooks to lead you in, just like a
Brokers were expected to
follow the scripts and only
                                  very strategic advertising campaign.
give customers the                That’s the reason why people fall for
information they contained.       them ... usually they’re timed around
Brokers were discouraged          things that are current in the
from doing any outside            marketplace, and everybody wants
research, and were told to
rely on the firm's research       to be a winner.”
and representations. . . .             -Eric Stein, sentenced to eight years in
After the morning sales                prison after he pleaded guilty to 73
meeting, brokers were                  criminal counts, including mail fraud,
expected to spend the                  securities fraud, conspiracy, and laundering;
entire day (except for a               1,800 investors had lost $34 million.
lunch break) on the
telephone. The firm                                      (Source: The Wall Street Journal)
expected a high volume of
sales, and if brokers did not
stay on the phone, they were fired. . . . One broker conceded that he falsely
identified another salesman . . . as the firm's research analyst, and gave a
fictitious description of the purported analyst as “fat, bald, and badly
dressed.” He stated that the reason for the firm's policy of discouraging
customer sales was its desire to avoid negative price pressure on house
stocks, a circumstance that he did not disclose to customers.”




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General Approach
Below is the general approach brokers in one boiler room used to defraud
investors:
             (1) lying about the firm's reputation and expertise, claiming it
             had a “research department” that analyzed stocks when it
             didn't;

             (2) refusing to say anything negative about the stocks they
             pushed, including the “risk factors” discussed in the prospectus;

             (3) making baseless price predictions, promising that certain
             stocks would double in price within a short time period;

             (4) impersonating other salespeople at the firm; and

             (5) discouraging customers from selling the stocks they
             recommended without regard to the customers' best interests.



 KEY IDEA:     Be extremely skeptical when considering any
 investment opportunity a stranger tries to sell over the phone.



                                   (Source: Securities and Exchange Commission)




Scams Involving Treasury Securities
Scams Involving the Renting or Leasing of Treasury Securities


The Bureau of the Public Debt often hears about solicitations to "rent" or
"lease" Treasury securities. Many of these solicitations have originated in the
United Kingdom, Greece and South Africa. As of late 2004, they haven’t yet
heard of a single genuine renting or leasing arrangement.




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Usually, the securities offered either don't exist (for instance, the offer is for
bearer securities in an amount that exceeds the amount that remains
outstanding in bearer form for that particular CUSIP) or are not owned by the
party making the offer. If you ask a leasing scam artist to produce the
securities or otherwise prove ownership, he or she will be unable to do so
and will proffer excuses such as "they are frozen at my bank;" "a wealthy
philanthropist has assigned them to us to assign to others for infrastructure
or humanitarian purposes in third world countries and wishes to remain
anonymous;" and "bank secrecy laws of this country prevent such a
verification." In addition, the scam artist will use one or more of the following
tricks to try to con you:

   1. misusing Public Debt forms as evidence of ownership;
   2. misusing CUSIP numbers as evidence of ownership; and
   3. claiming that the scam has been certified by an official body of some
      sort.

Misuse of Public Debt Forms as Evidence of Ownership


Scam artists often misuse Public Debt forms to attempt to prove ownership
or to make the scam seem "official." The two forms that are commonly
misused are:

      (1) PD F 1832 - Special Form of Assignment for U.S. Registered
      Definitive Securities; and
      (2) PD F 1071 - Certificate of Ownership of United States Bearer
      Securities.

We only use the PD F 1832 in limited cases to correct defective assignments
of securities already in our possession. We also sometimes use it for the
assignment of a large number of securities or where there is an assignment
by two or more geographically separated owners. In all cases the form is not
valid unless the registered securities actually accompany the form.

The PD F 1071 is used to validate the ownership of bearer notes and bonds
that are presented for redemption after they have become overdue. A bearer
security becomes overdue after the lapse of between one and six months
time from its face maturity date, depending on the original term of the
security (e.g., three months for a three-year note).




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Scam artists try to use the forms as "evidence" that they hold the securities
and claim that the forms can convey ownership or title to the securities listed
on the forms. However, if
you examine such a form
you should see that the         “If you ask a leasing scam artist to
scam artist is misusing the
                                produce the securities or otherwise
form and cannot prove
ownership of the securities     prove ownership, he or she will be
listed. For instance, a         unable to do so and will proffer
typical misused form PD F       excuses such as "they are frozen at
1071 will fail to list serial   my bank;" "a wealthy philanthropist
numbers for any bearer
securities allegedly owned
                                has assigned them to us to assign to
and will fail to provide        others for infrastructure or
information explaining why      humanitarian purposes in third world
the securities were not         countries and wishes to remain
presented for payment           anonymous;" and "bank secrecy laws
before they became
overdue. (The latter occurs
                                of this country prevent such a
because the bearer              verification."
securities allegedly owned                          - Bureau of the Public Debt
will not have reached
maturity at the time the
form is misused.)




THE IMPORTANT THING TO REMEMBER IS THAT BOTH THE PD F 1832
AND THE PD F 1071 HAVE ABSOLUTELY NOTHING TO DO WITH BOOK-
ENTRY BILLS, NOTES OR BONDS. UNLESS THERE ARE ACTUAL
SECURITIES PHYSICALLY ATTACHED TO ONE OF THESE FORMS, THE
FORM IS MEANINGLESS AND WORTHLESS.




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         (Source: Bureau of the Public Debt)




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Misuse of CUSIP Numbers as Evidence of Ownership



 LANGUAGE: “CUSIP” is an acronym for the Committee on
 Uniform Securities Identification Procedures.



The scam artists will also use a valid CUSIP number of a Treasury security
that trades regularly in the market so a potential victim can get pricing
information and confirm that we did issue the security. CUSIP is an acronym
for the Committee on Uniform Securities Identification Procedures. Each
security issue (stocks, corporate, municipal or Treasury securities) has a
unique CUSIP number. The CUSIP number is public information and it
identifies an entire issue of a security. It does not identify any particular
security, nor does mere use of it indicate ownership.

Claims that the Scam has been Certified by an Official Body


The scam artists may claim that their fraudulent offering has been certified
by an official body
such as the U.S.
Embassy in London        “I've got a no-risk business deal for you that will
or the International     earn 20% a month,” the pitch might begin. “You
Chamber of               loan my business $100,000, and I’ll give you a
Commerce. They           Limited Edition Treasury Security from 1934 as
may also claim that      collateral. The security is worth $500 million, so
we have created a        you have no risk in this deal. If the business
special issue to the     deal falls through and we default, you cash in
United Nations to        the collateral and make a bundle.”
pass on to other
companies that were      Sound too good to be true?. The proposed
willing to do            collateral is worthless because the Treasury
humanitarian and         Department has never issued "Limited Edition
infrastructure           Securities." You can bet that any loans made
projects in
                         under this business deal will never be
developing
countries. All of        profitable.
these claims are                                     - Bureau of the Public Debt
patently false.




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Scams Involving the Blocking of Assigned Treasury Securities


The U.S. Treasury periodically receives requests to block off an amount of
Treasury securities so the securities can be used to fund humanitarian or
infrastructure projects in developing countries. This request is impossible for
them to honor. They only sell securities at public auctions. Once sold, they
are owned by the individual purchasers, not us. The Treasury can not block
securities that they do not own.

                                        (Source: Bureau of the Public Debt, under
                                            the U.S. Department of the Treasury)




How Marketable Treasury Securities are Genuinely Sold

Treasury securities are sold by the Bureau of the Public Debt, under the U.S.
Department of the Treasury, at public auctions on a regular schedule well
known to market participants. Auctions are announced as far in advance as
practical to allow investors to prepare for the sale. THEY DO NOT ISSUE
SECURITIES THROUGH PRIVATE PLACEMENTS, NOR DO THEY LICENSE
FINANCIAL ENTITIES OR INDIVIDUALS TO ACT AS INTERMEDIARIES TO
SELL MARKETABLE TREASURY SECURITIES. While the Treasury doesn’t
designate particular financial institutions to sell Treasury bills, notes and
bonds, they are available through banks and brokerages.

Marketable Treasury Securities Exist in Three Forms:


   (1) book-entry

   (2) bearer

   (3) registered

An overwhelming amount (99.84% of outstanding marketable securities)
exist in book-entry form. Securities in book-entry form exist not as printed
certificates but rather as computer records on our books and on the books of
banks and government securities brokers and dealers. Book-entry securities
first became available in 1968. Since 1986, the Bureau of the Public Debt has
only issued securities in book-entry form.




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In addition to book-entry form, a
very small percentage (.14% of         The U.S. Treasury’s Bureau of
outstanding marketable securities)     the Public Debt only sells
exist in bearer form. A bearer         marketable Treasury
security is a printed certificate with securities at public auctions -
interest coupons attached. A
                                       Treasury bills, notes and
bearer security does not contain
                                       bonds are not issued through
the name of the owner and the
                                       private placements.
Bureau of the Public Debt doesn’t
keep records of ownership. Title to
a bearer security passes on delivery. They make interest and principal
payments to the presenter of the interest coupons and certificate. The
issuance of bearer Treasury securities was discontinued in 1982.

Finally, an even smaller percentage (.02% of outstanding marketable
securities) exist in registered form. A registered security is a printed
certificate with the name of the owner stated on the face of the security. The
Treasury’s Bureau of the Public Debt maintains records of ownership and
issues semi-annual interest payments to the owner of record. Only the owner
may submit the registered security at maturity for payment. The owner can
transfer his or her registered security by completing an assignment form on
the back of the certificate. The Bureau of the Public Debt adjusts their
                                            ownership records to reflect
  99.84% of outstanding                     transfers. Issuance of registered
                                            securities was discontinued in
  Treasury bills, notes and                 1986.
 bonds exist in “book-entry”
 form. The odds of a legitimate           The total dollar amount of
 Treasury security in any other           marketable Treasury securities
 form, such as “bearer” or                outstanding in certificate form (i.e.,
 “registered”, are quite slim.            registered and bearer form
 Since 1986, marketable                   combined) is only about $5.2
 Treasury securities have only            billion. That accounts for only one
 been issued in book-entry                sixth of one percent of all
 form.                                    outstanding marketable Treasury
                                          securities!


                                             (Source: Bureau of the Public Debt)




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How To Detect Counterfeit Money
The public has a role in maintaining the integrity of our currency. You can
help guard against the threat from counterfeiters by becoming more familiar
with United States currency.

Look at the money you receive. Compare a suspect note with a genuine note
of the same denomination and series, paying attention to the quality of
printing and paper characteristics. Look for differences, not similarities.



Portrait

The genuine portrait appears lifelike and stands out distinctly from the
background. The counterfeit portrait is usually lifeless and flat. Details merge
into the background which is often too dark or mottled.




Federal Reserve and Treasury Seals

On a genuine bill, the saw-tooth points of the Federal Reserve and Treasury
seals are clear, distinct, and sharp. The counterfeit seals may have uneven,
blunt, or broken saw -tooth points.




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Border

The fine lines in the border of a genuine bill are clear and unbroken. On the
counterfeit, the lines in the outer margin and scrollwork may be blurred and
indistinct.




Serial Numbers

Genuine serial numbers have a distinctive style and are evenly spaced. The
serial numbers are printed in the same ink color as the Treasury Seal. On a
counterfeit, the serial numbers may differ in color or shade of ink from the
Treasury seal. The numbers may not be uniformly spaced or aligned.




Paper

Genuine currency paper has tiny red and blue fibers embedded throughout.
Often counterfeiters try to simulate these fibers by printing tiny red and blue
lines on their paper. Close inspection reveals, however, that on the
counterfeit note the lines are printed on the surface, not embedded in the
paper. It is illegal to reproduce the distinctive paper used in the
manufacturing of United States currency.




                                           (Source: United States Secret Service)




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Investing in Rare Coins
How To Protect Yourself

If you intend to buy rare or bullion coins for investment, your best protection
is to spend time learning about the coins you are being asked to buy. In the
past, most investment gains have gone to collectors, often known as
numismatists, who have taken the time to carefully study various aspects of
coins, including rarity, grading, market availability, and price trends.
Investment success over the years is the result of prudently acquiring coins
of selected quality, proven rarity, and established numismatic desirability.
Many careful buyers study coins for some time before buying even a single
coin. Success also can be enhanced by researching dealers, as well as coins.

If you receive any solicitation about investing in coins, keep these points in
mind:

      · Use common sense when evaluating any investment claims and do
      not rush into buying. Remember, anything that sounds too good to be
      true usually is not true.

      · Make sure you know your dealer's reputation and reliability before
      you send money or authorize a credit card transaction. If you can, find
      out how long the company has been in business. Don't rely just on
      what a dealer's representative tells you on the phone. For example, if
      a dealer claims to be a member of a professional organization, call the
      organization and make sure that the claim is true. If you cannot
      confirm the reliability of the dealer, consider investing with another
      firm.

      · Do not be taken in by promises that the dealer will buy back your
      coins at or for more than the price you paid or that grading is
      guaranteed unless you are confident that the dealer has the financial
      resources to stand behind these promises. Many of the coin sellers
      prosecuted by the Federal Trade Commission in the last several years
      have not been able to meet guarantees and other obligations to their
      customers.

      ·It is wise to get a second opinion from another source about grade
      and value as soon as you receive your coins. So, before you buy, find
      out what remedies you will have if the second opinion differs. For
      example, some companies offer a 30-day return period if you are not
      satisfied with your purchase. Check the information that you are given.


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Will the full purchase price be refunded or will you be given a credit to
be used for the purchase of other coins? If a dealer promises to buy
back the coins at the same grade at which they were sold, does that
mean at the price you paid or at some discounted amount?

· Check the grades of any coins you buy with an independent source.
Be cautious about grading certificates and "slabs," especially those
furnished by coin dealers. Many of the third-party grading services
encapsulate or "slab" a coin in an acrylic holder with a grading
number. This can protect the coin from further damage and reduce the
chances of having a coin of a lesser grade substituted for one of a
higher grade. If you use a grading certificate or slab as a second
opinion, be sure you understand what they represent. Grading is not
an exact science, and a certificate or slab represents no more than the
opinion of the certification or grading service. Find out if the grading
service is indeed independent of the dealer, what grading standards
the service used, and what is the service's reputation in the industry.
Also because grading standards vary, coins certified by different
services will be worth more or less than other coins of the same grade.
Weekly periodicals or sight-unseen trading networks list prices for
coins that have been certified by various services. Check the prices for
those coins you are considering.

· Comparison shop. You need to be concerned not only with grades,
but with prices as well. Consult several dealers before buying. Check
prices in leading coin publications or sight-unseen trading network lists
to make sure you are not being overcharged. Sight-unseen coin
trading networks offer only the lowest-priced bids being offered for
coins. Several publications list representative wholesale values for fine
coins of various issues and grades. These values generally are higher
than the prices consumers can expect to receive if they were to
immediately sell their coins, and lower than the retail prices
consumers may be charged to buy the coins. Consult such publications
prior to trusting dealers' representations about the current value of
coins. If a dealer's advertised price is much lower than the price listed
in these publications, then the dealer may be misrepresenting the
quality or grade of the coin.

· Take possession of any coins you purchase to ensure they exist and
to be sure that they are properly stored.

· As with any consumer purchase, be wary about giving your credit
card number to strangers, especially over the telephone.




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How To Identify Fraudulent Sellers

The fact is: It is very difficult to identify fraudulent sellers of rare and bullion
coins because they often look like legitimate dealers. For example, fraudulent
sellers frequently have elegant offices in the financial districts of major cities,
employ "account executives" or "investment counselors," and produce glossy,
attractive brochures on investment strategy. They may claim to have leading
coin experts on their staffs, or claim to be the largest or finest dealers in the
business. Because fraudulent sellers often appear to be reputable, it is
particularly important to check the information you are given.

Also, fraudulent sellers of rare and bullion coins often use many of the same
techniques as legitimate dealers to attract buyers. Some advertise in
newspapers and magazines and sometimes meet prospective clients through
financial planners and insurance agents. Others use a popular sales method
known as telemarketing. For example, you may be approached about coin
investing through an unsolicited telephone call, or you may be called after
you have responded by mail to an advertisement. Because telemarketing
fraud has grown rapidly over the last several years, you should be
particularly careful about committing yourself to any purchase from an
unsolicited caller.

Recently, some fraudulent sellers have been using multi-level marketing
systems, also known as pyramid schemes to sell coins. Listed below are
some sales techniques commonly used by dishonest dealers.



False Grading Claims

Usually, the value of a rare coin is determined by its grade and rarity, so it is
very important that the rare coins you buy are graded correctly. The grade of
a rare coin is a shorthand method of describing its condition. Because
grading includes such factors as "overall appearance" and "eye appeal," it
necessarily involves some degree of subjectivity. As a result, the grade
assigned to a particular coin may vary even among legitimate dealers,
especially in the higher, investment- quality grades where distinctions in
condition are more subtle. Because the fine distinctions between grades often
mean large differences in the value or price of a coin, the subjectivity in
grading means that there is some inherent risk in coin investing. Fraudulent
sellers, however, often intentionally inflate the grades of the coins they sell,
charging prices many times the coins' actual value. For example, you might
pay $450 for an 1882-S Morgan dollar, that was described to you as having a


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high grade because of its excellent condition. Later, however, you may find
that the accurate grade for the coin is two or more grades lower, and that
the coin is actually worth only $50. Prior to the advent of independent
certification services, false grading was the most common form of rare coin
fraud.


False Slab Certification Claims

Many consumers and financial planners use third-party grading or
certification services to verify grade before they buy. These services "certify"
coins as to grade and usually encapsulate them in a "plastic" holder with
some form of grading certificate or "slab." However, consumers can lose
money even when a certification or grading service is used. Certification
services provided by dishonest coin dealers too often are part of fraudulent
sales schemes and are intended to mislead consumers. In some instances,
even certificates or slabs from legitimate services can be misleading. For
example, some certification services use looser standards than those
generally accepted by dealers in the rare coin market. As a result, the coins
they certify may be worth less than other coins of the same grade. There are
special pricing publications and sight-unseen trading networks for coins
certified by major services. Before you buy any certified coin, make sure that
you check its current value in one of these sources. Some fraudulent sellers
may use an old certificate to mislead you into believing that a coin's grade is
accurate by today's standards. Check the date of any certificate or slab you
are offered and investigate the certification service before you commit to a
purchase.



False Claims About Current Value

Some dishonest sellers of rare coins grade their coins accurately, but mislead
consumers about the value of their coins. In other words, they overprice
their coins, charging significantly more than a coins' actual value even
though the coin is accurately graded. For example, they may charge $5,000
for an accurately graded $10 Indian gold piece, which has a current retail
value of only $1,750. False claims about value are becoming increasingly
common in rare coin fraud. Despite statements to the contrary, there is a
great deal of risk in coin investments. If you are not knowledgeable about
coins, you may lose all or most of your investment.




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False Appreciation Claims

Dishonest dealers often mislead buyers by quoting appreciation rates for rare
coins from an index formerly compiled each year by Salomon Brothers, a
New York investment bank. These quotes show appreciation of 12 percent to
25 percent a year. However, the Salomon index was based on a list of twenty
very rare coins, while the coins sold by dishonest dealers are more common
coins that are not likely to appreciate at the same rate, if at all. However,
almost all dealers, legitimate and dishonest alike, have used the Salomon
quotes. Therefore, it is particularly important that you choose your dealer
carefully. Remember, there is no guarantee that any coin will appreciate in
value. In fact, coins as an investment have been stagnant for the last several
years.



False Claims About Bullion Coins

Technically, bullion coins are not "rare" coins because their values are
determined principally by their gold or silver bullion content, rather than by
rarity or condition. The best known bullion coins are the U.S. American Eagle,
the Canadian Maple Leaf, and the South African Krugerrand. These coins are
bought and sold worldwide through banks, brokerage firms, coin dealers, and
precious metal dealers, who offer competing prices for the coins. Bullion coin
prices change daily depending on the varying prices for gold and silver in the
world markets. Fraudulent sellers of bullion coins often overprice their coins,
or mislead consumers about the coins' bullion content. When purchasing
bullion coins, call several reputable dealers or brokerage firms to compare
prices and be sure to ask about any additional transaction or delivery costs.
Fraudulent sellers also mislead consumers into buying "coins" that are not
really coins at all. Make sure the bullion coins you purchase are not imitation
medals created by fraudulent "mints." Some private mints issue bullion
pieces with the same design as coins from the U. S. Mint, but in different
sizes. To make sure you know what you are buying, your best protection is to
study the bullion market before you buy, and to choose your dealer carefully.



Where To Go For Help

If you have a problem with a coin dealer, and the dealer has not resolved the
problem to your satisfaction, there are a number of places you can go from
help. Some dealers will resolve disputes through binding arbitration by an


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independent third party, usually through one of their professional
organizations. Consumer protection agencies, including the Federal Trade
Commission, are interested in getting your complaint information to build
cases against fraudulent dealers. Although most government offices are not
able to resolve individual disputes, they can usually give you sound advice
about how to proceed. Also, most coin organizations can help you if the
dealer is a member of their organization.

Coin Organizations

The American Numismatic Association ("ANA")
[http://www.money.org/index.shtml] is a non-profit organization of
collectors, but many dealers are also members. The ANA provides many
educational programs for both novice and experienced collectors. If you have
a complaint about an ANA member, you can write to the Association at 818
North Cascade Avenue, Colorado Springs, CO 80903.

Industry Council for Tangible Assets ("ICTA") [http://www.ictaonline.org/] is
a national trade association of coin and precious metals dealers. ICTA urges
its members to subscribe to a program of binding arbitration administered by
the American Arbitration Association (AAA). It also keeps records of other
programs of arbitration or mediation its members adhere to. If you have a
question whether or not an ICTA member subscribes to the AAA program or
another, you may write to ICTA at P.O. Box 1365, Severna Park, MD 21146.

The Professional Numismatists Guild ("PNG")
[http://www.pngdealers.com/public/] is an organization of coin dealers and
numismatists. Membership in PNG is selective; to qualify, a dealer must have
a minimum number of years experience and meet a minimum net worth
requirement. The PNG also requires its members to submit to binding
arbitration in order to resolve complaints filed by consumers or other dealers.
If you have a complaint against a PNG member, you can write to PNG at
3950 Concordia Lane, Fallbrook, CA 92028

                                            (Source: Federal Trade Commission)




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The IRS Does Not “Approve” IRA Investments

Investors with Individual Retirement Arrangements (IRAs) should be on the
lookout for ads and solicitations that claim that certain types of investments
for IRAs are "IRS-Approved" or "IRA-Approved." The government says these
ads are misleading, because the IRS does not approve investments for IRAs.

Investors continue to receive misleading sales pitches for specific IRA
investments via the telephone, the mail and the Internet. Most solicitations
are variations on this theme:

      "This investment has been approved for your IRA. You can use
      your IRA for this investment by filling out the forms in the
      attached information package. Our agent will take care of the
      rest. This has been reviewed by the government (or the IRS).
      This investment is so safe you can use it for your IRA. Only
      certain investments are approved for IRAs."

Government agencies say that fraudulent promoters are trying to take
advantage of consumers who may be confused about the role of the IRS
when it comes to IRAs. The IRS
issues letters to IRA sponsors,  The IRS does not:
trustees and custodians
certifying that they are
                                    ?? review or approve
complying with requirements
concerning investor rights,             investments;
account administration, and         ?? advise people on how to invest
standards that allow                    their IRAs;
contributions to be deductible.     ?? endorse any investments; or
But the IRS does not review or      ?? issue statements that an
approve investments; advise             investment in an IRA is
people on how to invest their           protected because the IRS has
IRAs; endorse any investments;          approved a particular trustee
or issue statements that an             or custodian.
investment in an IRA is
protected because the IRS has                    - Federal Trade Commission
approved a particular trustee or
custodian.

Before you invest, check with your state securities regulator to make sure
the investment and person selling it are registered.

                                             (Source: Federal Trade Commission)




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Example of Prosecution Against a Promoter of Phony Trusts:

WASHINGTON D.C. (June 7, 2004) - Mark D. Poseley pled guilty to a felony
charge of conspiracy to defraud the Internal Revenue Service (IRS) for his
role in marketing bogus trusts through an organization known as Innovative
Financial Consultants (IFC). Mr. Poseley also pled guilty to a charge of
willfully failing to file his 2000 income tax return, despite having earned
substantial income from his work with IFC. Mr. Poseley faces a maximum
potential sentence of six years in jail, followed by up to four years of
supervised release, $500,000 in fines and liability for the costs of
prosecution.

The indictment alleges that from 1995 to 2003, IFC, based in Tempe,
Arizona, created and sold over 3,000 bogus “onshore” and “offshore” trust
packages by falsely claiming that
taxpayers could avoid paying income
taxes if they placed their income and    “Putting money into a trust
assets into such trusts. IFC allegedly   does not exempt it from
sold each onshore trust package for      taxation,” said. “People who
approximately $4,154, and each           act as though it does risk
offshore trust package for               criminal prosecution and jail.
approximately $10,500. According to      And in the end, they will still
the indictment, IFC enabled its clients  owe the taxes, with interest
to retain control and use of any         and penalties added.”
income and assets they placed into
the trusts, while making it more                    - Assistant Attorney General
                                                              Eileen J. O’Connor
difficult for the IRS to track the true
ownership of income and assets.

In his plea agreement, Mr. Poseley admitted he worked as an IFC salesman
and sold both onshore and offshore trust packages. He admitted that he
falsely represented to taxpayers that they could lawfully avoid paying income
taxes by placing their income and assets into trusts, despite remaining as the
trusts’ “managing directors.” Mr. Poseley acknowledged he knew the IFC
clients, as “managing directors,” retained control over any income and assets
they placed into their trusts. He admitted he ignored written publications
from the IRS and other sources which directly contradicted the false claims
he made. He also admitted that for the year 2000, he earned substantial
gross income from the sale of IFC’s trust packages but willfully failed to file
an income tax return and report that income to the IRS.

(Source: U.S. Department of Justice)




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Securities Investor Protection Corporation (SIPC)
THE ROLE OF SIPC

SIPC is the first line of defense in the event a brokerage firm fails owing
customers cash and securities that are missing from customer accounts.
Although not every investor is protected by SIPC, no fewer than 99 percent
of persons who are eligible get their
investments back from SIPC. From
                                           The SIPC does not cover
its creation by Congress in 1970
                                           individuals who are sold
through December 2003, SIPC
                                           worthless stocks and other
advanced $587 million in order to
                                           securities. SIPC helps
make possible the recovery of $14.0
                                           individuals whose money,
billion in assets for an estimated
                                           stocks and other securities are
628,000 investors.
                                           stolen by a broker or put at
                                           risk when a brokerage fails for
When a brokerage is closed due to
                                           other reasons.
bankruptcy or other financial
difficulties and customer assets are
missing, SIPC steps in as quickly as
possible and, within certain limits, works to return customers’ cash, stock
and other securities. Without SIPC, investors at financially troubled
brokerage firms might lose their securities or money forever…or wait for
years while their assets are tied up in court. Not everyone, and not every
loss, is protected by SIPC.

WHAT SIPC COVERS AND WHAT IT DOES NOT

SIPC is not the FDIC. The Securities Investor Protection Corporation does not
offer to investors the same blanket protection that the Federal Deposit
Insurance Corporatio n provides to bank depositors.

How are SIPC and the FDIC different? When a member bank fails, the FDIC
insures all depositors at that institution against loss up to a certain dollar
limit. The FDIC’s no-questions-asked approach makes sense because the
banking world is “risk averse.” Most savers put their money in FDIC -insured
bank accounts because they can’t afford to lose their money.

That is precisely the opposite of how investors behave in the stock market, in
which rewards are only possible with risk. Most market losses are a normal
part of the ups and downs of the risk-oriented world of investing. That is why
SIPC does not bail out investors when the value of their stocks, bonds and
other investments falls for any reason. Instead, SIPC replaces missing
stocks and other securities where it is possible to do so ... even when the
investments have increased in value.


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SIPC does not cover individuals who are sold worthless stocks and other
securities. SIPC helps individuals whose money, stocks and other securities
are stolen by a broker or put at risk when a brokerage fails for other reasons.

                              (Source: Securities Investor Protection Corporation)




Federal Deposit Insurance Corporation (FDIC)
What Is and Is Not Protected by FDIC Insurance?

So--you feel your cash is safe and protected when you walk through the door
of the bank, much safer than when you kept it under your mattress. And you
should. BUT, are your funds all covered by FDIC insurance just because you
walked into a secure-looking building with iron bars and guards? Not
necessarily--it depends on which of the bank's products you decide to use.

Traditional Types of Bank Accounts (Yes)

You are probably familiar with the traditional types of bank accounts--
checking, savings, trust, and certificates of deposit (CDs)--that are insured
by the FDIC. Banks also may offer what is called a money market deposit
account, which earns interest at a rate set by the bank and usually limits the
customer to a certain number of transactions within a stated time period.
Except for certain trust accounts (where the assets of the account consist of
securities rather than deposits), all of these types of accounts generally are
insured by the FDIC up to the legal limit of $100,000 and sometimes even
more for special kinds of accounts.

Mutual Funds (No)

Investors sometimes favor mutual funds over other investments, perhaps
because they hold promise of a higher rate of return than say, CDs. And with
a mutual fund, such as a stock fund, your risk--the risk of a company going
bankrupt, resulting in the loss of investors' funds--is more spread out
because you own a piece of a lot of companies instead of a portion of a single
enterprise. A mutual fund manager may invest the fund's money in either a
variety of industries or several co mpanies in the same industry.

Or your funds may be invested in a money market mutual fund, which may
invest in short-term CDs or securities such as Treasury bills and government
or corporate bonds. Do not confuse a money market mutual fund with an
FDIC-insured money market deposit account (described earlier), which earns



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interest in an amount determined by, and paid by, the financial institution
where your funds are deposited.

You can--and should--obtain definitive information about any mutual fund
before investing in it by reading a prospectus, which is available at the bank
or brokerage where you plan to do business. The key point to remember
when you contemplate purchasing mutual funds, stocks, bonds or other
investment products, whether at a bank or elsewhere, is: Funds so invested
are NOT deposits, and therefore are NOT insured by the FDIC --or any other
                                         agency of the federal government.

 FDIC-Insured:                                  Securities you own, including mutual
                                                funds, that are held for your account
 · Checking Accounts (including                 by a broker, or a bank's brokerage
 money market deposit accounts)                 subsidiary, are protected against
                                                physical loss by the Securities
 · Savings Accounts (including                  Investor Protection Corporation
 passbook accounts)                             (SIPC, pronounced si-pick), a non-
                                                government entity funded by
 · Certificates of Deposit                      assessments paid by members.
                                                SIPC protects customer accounts
 · Retirement Accounts (consisting of           held by its members up to $500,000,
 cash on deposit at a bank or thrift)           including up to $100,000 in cash, if a
                                                member brokerage or bank
 Not FDIC-Insured:                              brokerage subsidiary fails.

 · Investments in mutual funds                  A very important distinction between
 (stock, bond or money market                   SIPC (and any other type of
 mutual funds), whether purchased               protection for investments) and FDIC
 from a bank, brokerage or dealer               insurance on deposit accounts is: NO
                                                type of protection for investments
 · Annuities (underwritten by                   insures against loss in the value of
 insurance companies, but sold at               an account (the value of your
 some banks)                                    investments can go up--or DOWN--
                                                depending on the demand for them
 · Stocks, bonds, Treasury securities           in the market), while federal deposit
 or other investment products,                  insurance protects the amount in
 whether purchased through a bank               your deposit account(s) up to the
 or a broker/dealer                             $100,000 limit.

             - Federal Deposit Insurance        Treasury Securities (No)
                             Corporation
                                      Treasury securities include Treasury
                                      bills (T-bills), notes and bonds. T-
bills are more commonly purchased through a financial institution.


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Customers who purchase T-bills at banks that later fail become concerned
because they think their actual Treasury securities were kept at the failed
bank. In fact, in most cases banks purchase T-bills via book entry, meaning
that there is an accounting entry maintained electronically on the records of
the Treasury Department; no engraved certificates are issued. Treasury
securities belong to the customer; the bank is merely acting as custodian.

Customers who hold Treasury securities purchased through a bank that later
fails can request a document from the acquiring bank (or from the FDIC if
there is no acquirer) showing proof of ownership and redeem the security at
the nearest Federal Reserve Bank. Or, customers can wait for the security to
reach its maturity date and receive a check from the acquiring institution,
which may automatically become the new custodian of the failed bank's T-bill
customer list (or from the FDIC acting as receiver for the failed bank when
there is no acquirer).

Even though Treasury securities are not covered by federal deposit
insurance, payments of interest and principal (including redemption
proceeds) on those securities that are deposited to an investor's deposit
account at an insured depository institution ARE covered by federal insurance
on Treasury securities, they are backed by the full faith and credit of the
United States Government--the strongest guarantee you can get.

Safe Deposit Boxes (No)

The contents of a safe deposit box are NOT insured by the FDIC, or,
generally, by the bank where the box is located. (Make sure you read the
contract you signed with the bank when you rented the safe deposit box in
the event that some type of insurance is provided; some banks may make a
very limited payment if the box or contents are damaged or destroyed,
depending on the circumstances.) If you are concerned about the safety, or
replacement, of items you have put in a safe deposit box, you may wish to
consider purchasing fire and theft insurance. Separate insurance for these
perils may be available; consult your insurance agent. Usually such
insurance is part of a homeowner's or tenant's insurance policy for a
residence and its contents. Again, consult your insurance agent for more
information. If floods and earthquakes have been known to occur in your
location, you may want to look into insurance against these natural disasters.

In the event of a bank failure, in most cases an acquiring institution would
take over the failed bank's offices, including locations with safe deposit
boxes. If the FDIC conducts a payoff because no acquirer can be found, box
holders would be sent instructions about removing the contents of their
boxes.




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Robberies And Other Thefts (No)

Stolen funds may be covered by what's called a banker's blanket bond, which
is a multi-purpose insurance policy a bank purchases to protect itself from
fire, flood, earthquake, robbery, defalcation, embezzlement and other causes
of disappearing funds. The banker's blanket bond ensures that customers'
funds are protected under those circumstances.

In those rare instances where a bank employee may tamper with a
customer's account, the bank's blanket bond insurance may cover the loss
and the funds could be returned to the customer. However, if a third party
somehow gains access to your account and transacts business that you
wouldn't approve of, you must contact the bank and your local law
enforcement authorities, who have jurisdiction over this type of wrongdoing.

                                 (Source: Federal Deposit Insurance Corporation)




Debit and Credit Card Fraud
State-of-the-art thieves are concentrating on plastic cards. In the past, this
type of fraud was not very common. Today, it is a big business for criminals.
Plastic cards bring new convenience to your shopping and banking, but they
can turn into nightmares in the wrong hands. Below are some common
schemes involving card fraud with tips to help you avoid them:

Credit and Debit Card Differences

Although they may look the same, all plastic cards do not work the same. In
fact, there are two very different kinds of cards in use today: credit cards
and debit cards.

As the names imply, credit cards allow the extension of credit and the delay
of payment while debit cards charge or debit your account at the moment of
the transaction.

Credit Cards

Many credit cards work as follows: You charge goods or services and the
merchant who accepts your credit card sends the transaction information to
the card-issuing institution. The institution then bills you, usually on a
monthly basis. In many cases, payment may be made by the due date with




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no interest assessed. If the total bill is not paid by the due date, you often
can pay off your debt in monthly payments that include finance charges.

Debit Cards

Debit cards, unlike credit cards, automatically withdraw funds from your
account at the time you make a transaction.

Debit cards are used most commonly at automated teller machines (ATMs)
and for purchasing goods directly in stores.

The machine-readable plastic card contains a magnetic strip indicating your
account number, bank number, and type of account. Debit card users gain
access to the issuing institution's computer by using a secret code, their
personal identification number (PIN). The PIN should only be known to the
card holder.

Avoiding Card Fraud

Although credit and debit card fraud can take many forms, the following
examples explain some situations to watch for.

Stolen Cards at the Office

Over the lunch hour when you leave your office for lunch, you could be the
target of a credit card thief. Credit card thieves often gain illegal access to
the offices of employees who are away in order to search unattended. Most
times, they leave the offices and immediately go on a shopping spree, charge
credit cards to their limits, and withdraw cash on debit cards.

Protect your credit cards as you would cash. Never write your PIN number on
your debit card. Instead, always commit your PIN number to memory.

Extra Copies of Charge Slips

When processing your credit card, a dishonest merchant may decide to
imprint a few extra copies of the charge slip. Later, the merchant can submit
these copies to the issuing institution for payment on phony charges.

Keep your eye on your credit card whenever it is in use. Watch clerks process
your credit payments. Open your credit card bills promptly each month. Make
sure that you made the listed purchases. Also, report any charges that you
did not make to the credit card company.

Discarded Charge Slips


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Sometimes, people may collect copies of your discarded charge slips from
the wastebasket. Dishonest people could use the information from the copies
to order merchandise by mail and ship it to a phony address. In addition,
they could also sell the copies to counterfeiters who would take the account
numbers and use them to alter cards or make new ones.

After signing a credit card slip, ask for your receipt or duplicates. After you
have compared them to the charges listed on your monthly credit card
statement, tear them up and throw them away.

Unsigned Credit Cards

Stealing and using credit cards that have not been signed is another potential
fraud. In other words, credit card thieves could steal your unsigned credit
cards and then sign your name on the card in their handwriting. By doing so,
they take your name as an alias and they will never have a problem writing
and verifying their own signature.

Protect your credit cards. When you receive a new or replacement card, sign
the back of it as soon as it is activated. Always be sure to store it in a safe
place. Cut up expired cards before disposing of them.

Loss of Multiple Cards

While shopping, you can easily be targeted by pickpockets. If your purse or
wallet is stolen, you may lose all your credit cards at one time.

Separate your cards. Only carry those cards with you that you plan to use.
Also, check your cards from time to time and put aside those cards you don't
use very often.

Strange Requests for Your PIN Numbers

This form of fraud involves thieves who find creative ways to steal your credit
or debit cards when you don't know about it. For example, sometimes people
crawl behind rows in movie theaters and steal pocketbooks while you are
watching a movie. When you return home they call you, identify themselves
as bank security agents, and ask for your PIN numbers. If you hesitate, they
simply ask you to phone their supervisor and give you an accomplice's phone
number to call. By doing so, they are able to get your PIN numbers and use
the stolen debit cards to withdraw cash and make purchases.

Again, never reveal your PIN number to anyone. Also, never keep your PIN
number in your purse or wallet. Don't write your PIN on your card either.
Always try to memorize it.


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Recognizing Counterfeit Cards

Legitimate cards follow standard specifications as to color, tint, quality, and
style. Stamped letters and numbers are spaced evenly and sized equally. The
signature panel is uniform in size and is almost impossible to scrape off.

Altered cards are made from actual cards. The original stamped data is
melted down or pressed out. Then, the card is re-stamped with legitimate
account numbers, names, and expiration dates, which have been illegally
obtained. On altered cards, the letters do not line up well and are usually
irregular in size. Some credit card companies help merchants identify altered
cards by making an authenticator machine available to merchants. The
machine authenticates or verifies certain information that is encoded on the
back stripe on the back of the
card.
                                           Avoiding Credit & Debit Card
Counterfeit cards are mostly                          Fraud
made by silk-screening or
painting the card logo and issuing       · Protect your credit cards as you would
institution's name onto a blank          cash.
piece of card plastic. Because
they are silk-screened, the cards        · Commit your PIN number to memory;
don't look exactly like the real         don’t write your PIN number on your
thing. Real credit cards are             card or keep it in your purse or wallet.
printed. Also, the signature panel
on silk-screened cards may be            · Keep your eye on your credit card
glued or painted on and can be           whenever it is in use. Watch clerks
easily lifted or chipped. This           process your credit payments.
panel may also appear uneven in
size or placement.                       · Open your credit card bills promptly
                                         each month and report any charges
New Technology                           that you did not make to the credit
                                         card company.
New technology is making it more
difficult for criminals to use, alter,   · After signing a credit card slip, ask for
or counterfeit credit and debit          your receipt or duplicates.
cards. Some of the innovations
are already in use.                                 - San Francisco Federal Reserve

These security features have
been added to major credit cards:




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Holograph - a three-dimensio nal, laser produced optical device that changes
its color and image as the card is tilted.

Fine-line printing - a repeated pattern of the card company name
positioned as background for the company logo.

Ultra-violet ink - special ink that is visible only under ultra-violet light,
which will display the credit card company's logo.

"Smart Cards" may be the credit cards of the future. Each card has a built-in
computer microprocessor. Signatures have been replaced with personal
identification numbers and verif ication is handled only by computers.
Eventually these cards may provide information on investments, charge
accounts, and money market accounts. We may someday think of the credit
card as a pocket-sized computer memory bank.

Improved verification methods are also being developed and tested. These
include fingerprinting, retinal eye scanners, and computerized signature
cards.

On the Internet

While using the Internet, you can learn about any number of topics and buy
almost anything. Be aware, though, that Internet shopping, like traditional
shopping, may carry some risk. Software to protect you and your privacy is
often a part of most web sites. In fact, when ordering online, it would be wise
to check if you are on a secure server by looking for a security symbol such
as an unbroken key or padlock symbol at the bottom of your Internet
browser window. These symbols indicate that any information you may send
to the web site, including your credit card numbers, is encrypted or put into
computer code prior to transmission.

Consumer Credit & Debit Card Liability

It is important to keep a personal list of your credit and debit card numbers,
the issuing banks, and their phone numbers so that you can contact them in
case of loss or theft.

Credit Cards

If your credit card is lost or stolen, contact your bank or issuing institution
immediately. Your monthly statement should list the phone number of whom
to contact.




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You do not have to pay for any unauthorized charges made after you have
notified the issuing bank or institution.
The most you will have to pay for
unauthorized charges is $50 on each             You Must Report
account. But this can add up if several     Suspected Fraud Quickly
cards are lost or stolen at the same time.      to Minimize Your
                                                   Personal Liability
If you think that you did not make some
or all of the purchases listed on your
statement, you can take action. The Fair Credit Billing Act, an addition to the
Truth-in-Lending law, requires prompt correction of billing mistakes. Within
60 days after the bill was mailed, you must notify the creditor in writing. You
do not have to pay the amount in question while you are waiting for an
answer.

Debit Cards

If your debit card is lost or stolen, notify the issuing bank or institution
immediately. According to the Electronic Funds Transfer Act, if notification is
given within two business days of discovery of the loss or theft, you may only
be liable for $50. If you do not notify them within the two-day limit, you
could lose up to $500. Finally, if notification is not given within 60 days after
receiving a statement showing unauthorized withdrawals, you could be liable
for everything.

                                  (Source: Federal Reserve Bank of San Francisco)




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"4-1-9" OR "ADVANCE FEE FRAUD" SCHEMES


Frequently Used Tactics:

      · An individual or company receives a letter or fax from an alleged
      "official" representing a foreign government or agency;

      · An offer is made to transfer millions of dollars in "over invoiced
      contract" funds into your personal bank account;

      · You are encouraged to travel overseas to complete the transaction;

      · You are requested to provide blank company letterhead forms,
      banking account information, telephone/fax numbers;

      · You receive numerous documents with official looking stamps, seals
      and logo testifying to the authenticity of the proposal;

      · Eventually you must provide up-front or advance fees for various
      taxes, attorney fees, transaction fees or bribes;



Other forms of 4-1-9 schemes include: c.o.d. of goods or services, real
estate ventures, purchases of crude oil at reduced prices, beneficiary of a
will, recipient of an award and paper currency conversion.



Nigerian Advance Fee Fraud Overview

The perpetrators of Advance Fee Fraud (AFF), known internationally as "4-1-
9" fraud after the section of the Nigerian penal code which addresses fraud
schemes, are often very creative and innovative.

Unfortunately, there is a perception that no one is prone to enter into such
an obviously suspicious relationship. However, a large number of victims are
enticed into believing they have been singled out from the masses to share in
multi-million dollar windfall profits for doing absolutely nothing. It is also a
misconception that the victim's bank account is requested so the culprit can




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plunder it -- this is not the primary reason for the account request -- merely
a signal they have hooked another victim.

      ·   In almost every case there is a sense of urgency;

      · The victim is enticed to travel to Nigeria or a border country;

      · There are many forged official looking documents;

      · Most of the correspondence is handled by fax or through the mail;

      · Blank letterheads and invoices are requested from the victim along
      with the banking particulars;

      · Any number of Nigerian fees are requested for processing the
      transaction with each fee purported to be the last required;

      · The confidential nature of the transaction is emphasized;

      · There are usually claims of strong ties to Nigerian officials;

      · A Nigerian residing in the U.S., London or other foreign venue may
      claim to be a clearing house bank for the Central Bank of Nigeria;

      · Offices in legitimate government buildings appear to have been used
      by impostors posing as the real occupants or officials.



The most prevalent and successful        “Indications are that Advance
cases of Advance Fee Fraud is the        Fee Fraud grosses hundreds of
fund transfer scam. In this scheme,      millions of dollars annually and
a company or individual will typically   the losses are continuing to
receive an unsolicited letter by mail    escalate. In all likelihood, there
from a Nigerian claiming to be a         are victims who do not report
senior civil servant. In the letter, the their losses to authorities due to
Nigerian will inform the recipient       either fear or embarrassment.”
that he is seeking a reputable
foreign company or individual into             - United States Secret Service
whose account he can deposit funds
ranging from $10-$60 million that
the Nigerian government overpaid on some procurement contract.



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The criminals obtain the names of potential victims from a variety of sources
including trade journals, professional directories, newspapers, and
commercial libraries. They do not target a single company, but rather send
out mailings en masse. The sender declares that he is a senior civil servant in
one of the Nigerian Ministries, usually the Nigerian National Petroleum
Corporation (NNPC). The letters refer to investigations of previous contracts
awarded by prior regimes alleging that many contracts were over invoiced.
Rather than return the money to the government, they desire to transfer the
money to a foreign account. The sums to be transferred average between
$10,000,000 to $60,000,000 and the recipient is usually offered a
commission up to 30 percent for assisting in the transfer.

Initially, the intended victim is instructed to provide company letterheads and
pro forma invoicing that will be used to show completion of the contract. One
of the reasons is to use the victim's letterhead to forge letters of
recommendation to other victim companies and to seek out a travel visa
from the American
Embassy in Lagos.
The victim is told that     Most common forms of Advance Fee
the completed               Fraud (AFF), or "4-1-9" fraud fall into
contracts will be           these main categories:
submitted for
approval to the             · Disbursement of money from wills
Central Bank of
Nigeria. Upon               · Contract fraud (C.O.D. of goods or services)
approval, the funds
will be remitted to an      · Purchase of real estate
account supplied by
the intended victim.        · Conversion of hard currency

The goal of the           · Transfer of funds from over invoiced contracts
criminal is to delude
the target into           · Sale of crude oil at below market prices
thinking that he is
being drawn into a                                - United States Secret Service
very lucrative, albeit
questionable,
arrangement. The intended victim must be reassured and confident of the
potential success of the deal. He will become the primary supporter of the
scheme and willingly contribute a large amount of money when the deal is
threatened. The term "when" is used because the con-within-the-con is the
scheme will be threatened in order to persuade the victim to provide a large
sum of money to save the venture.




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The letter, while appearing transparent and even ridiculous to most,
unfortunately is growing in its effectiveness. It sets the stage and is the
opening round of a two-layered scheme or scheme within a scheme. The
fraudster will eventually reach someone who, while skeptical, desperately
wants the deal to be genuine.

Victims are almost always requested to travel to Nigeria or a border country
to complete a transaction. Individuals are often told that a visa will not be
necessary to enter the country. The Nigerian con artists may then bribe
airport officials to pass the victims through Immigration and Customs.
Because it is a serious offense in Nigeria to enter without a valid visa, the
victim's illegal entry may be used by the fraudsters as leverage to coerce the
victims into releasing funds. Violence and threats of physical harm may be
employed to further pressure victims. In June of 1995, an American was
murdered in Lagos, Nigeria, while pursuing a 4-1-9 scam, and numerous
other foreign nationals have been reported as missing.

Victims are often convinced of the authenticity of Advance Fee Fraud
schemes by the forged or false documents bearing apparently official
Nigerian government letterhead, seals, as well as false letters of credit,
payment schedules and bank drafts. The fraudster may establish the
credibility of his contacts, and thereby his influence, by arranging a meeting
between the victim and "government officials" in real or fake government
offices.

In the next stage some alleged problem concerning the "inside man" will
suddenly arise. An official will demand an up-front bribe or an unforeseen tax
or fee to the Nigerian government will have to be paid before the money can
be transferred. These can include licensing fees, registration fees, and
various forms of taxes and attorney fees. Normally each fee paid is described
as the very last fee required. Invariably, oversights and errors in the deal are
discovered by the Nigerians, necessitating additional payments and allowing
the scheme to be stretched out over many months.

Several reasons have been submitted why Nigerian Advance Fee Fraud has
undergone a dramatic increase in recent years. The explanations are as
diverse as the types of schemes. The Nigerian Government blames the
growing problem on mass unemployment, extended family systems, a get
rich quick syndrome, and, especially, the greed of foreigners.

Indications are that Advance Fee Fraud grosses hundreds of millions of
dollars annually and the losses are continuing to escalate. In all likelihood,
there are victims who do not report their losses to authorities due to either
fear or embarrassment. (Source: United States Secret Service)




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Pyramid Schemes
In the classic "pyramid" scheme, participants attempt to make money solely
by recruiting new participants into the program. The hallmark of these
schemes is the promise of sky-high returns in a short period of time for doing
nothing other than handing over your money and getting others to do the
same.

The fraudsters behind a pyramid scheme may go to great lengths to make
the program look like a legitimate multi-level marketing program. But despite
their claims to have legitimate products or services to sell, these fraudsters
simply use money coming in from new recruits to pay off early stage
investors. But eventually the pyramid will collapse. At some point the
schemes get too big, the promoter cannot raise enough money from new
investors to pay earlier investors, and many people lose their money. The
chart below shows how pyramid schemes can become impossible to sustain:




(Source: Securities and Exchange Commission)




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Ponzi Fraud
 “Ponzi” refers to a type of Pyramid investment fraud wherein the operator
promises high financial returns or dividends that are not available through
traditional investments. Instead of investing victims' funds, the operator pays
"dividends" to initial investors using the principle amounts "invested" by
subsequent investors. The scheme generally falls apart when the operator
flees with all of the proceeds, or when a sufficient number of new investors
cannot be found to allow the continued payment of "dividends."

This type of scheme is named after Charles Ponzi of Boston, Massachusetts,
who operated an extremely attractive investment scheme in which he
guaranteed investors a 50 percent return on their investment in postal
coupons. Although he was able to pay his initial investors, the scheme
dissolved when he was unable to pay investors who entered the scheme
later.


                                           (Source: Federal Bureau of Investigation)




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Affinity Fraud
“Affinity Fraud” refers to investment scams that prey upon members of
identifiable groups, such as religious or ethnic communities, the elderly, or
professional groups. The fraudsters who promote affinity scams frequently
are - or pretend to be - members of the group. They often enlist respected
community or religious leaders from within the group to spread the word
about the scheme, by convincing those people that a fraudulent investment
is legitimate and worthwhile. Many times, those leaders become unwitting
victims of the fraudster's ruse.

These scams exploit the trust and friendship that exist in groups of people
who have something in common. Because of the tight-knit structure of many
groups, it can be difficult for regulators or law enforcement officials to detect
an affinity scam. Victim s often fail to
notify authorities or pursue their legal     Many affinity scams involve
remedies, and instead try to work
                                             "Ponzi" or pyramid
things out within the group. This is
particularly true where the fraudsters       schemes, where new
have used respected community or             investor money is used to
religious leaders to convince others to      make payments to earlier
join the investment.                         investors to give the false
                                            illusion that the investment
Many affinity scams involve "Ponzi" or      is successful.
pyramid schemes, where new investor
money is used to make payments to                      - Securities and Exchange
earlier investors to give the false                                   Commission
illusion that the investment is
successful. This ploy is used to trick
new investors to invest in the scheme and to lull existing investors into
believing their investments are safe and secure. In reality, the fraudster
almost always steals investor money for personal use. Both types of schemes
depend on an unending supply of new investors - when the inevitable occurs,
and the supply of investors dries up, the whole scheme collapses and
investors discover that most or all of their money is gone.

How To Avoid Affinity Fraud

Investing always involves some degree of risk. You can minimize your risk of
unwise investments by asking questions and getting the facts about any
investment before you buy. To avoid affinity and other scams, you should:




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· Check out everything - no matter how trustworthy the person seems
who brings the investment opportunity to your attention. Never make
an investment based solely on the recommendation of a member of an
organization or
religious or ethnic
                      Pyramid schemes depend on the
group to which you
belong. Investigate   recruitment of new participants --
the investment        the base of the pyramid-- in order to
thoroughly and        deliver a promised return to those
check the truth of    who invested first --the top of the
every statement you   pyramid. It doesn't take long for the
are told about the    scheme to run out of fresh recruits,
investment. Be        who are needed to keep up the
aware that the        appearance of profit generation. The
person telling you    pyramid collapses, leaving all but
about the
                      the original "insiders" defrauded.
investment may
have been fooled             - New Jersey Office of the Attorney General
into believing that
the investment is
legitimate when it is
not.

· Don’t fall for investments that promise spectacular profits or
"guaranteed" returns. If an investment seems too good to be true,
then it probably is. Similarly, be extremely leery of any investment
that is said to have no risks; very few investments are risk-free. The
greater the potential return from an investment, the greater your risk
of losing money. Promises of fast and high profits, with little or no risk,
are classic warning signs of fraud.

· Be skeptical of any investment opportunity that is not in writing.
Fraudsters often avoid putting things in writing, but legitimate
investments are usually in writing. Avoid an investment if you are told
they do "not have the time to reduce to writing" the particulars about
the investment. You should also be suspicious if you are told to keep
the investment opportunity confidential.

(cont’d on next page)




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       · Don't be pressured or rushed into buying an investment before you
       have a chance to think about - or investigate - the "opportunity." Just
       because someone you know made money, or claims to have made
       money, doesn't mean you will too. Be especially skeptical of
       investments that are pitched as "once-in-a-lifetime" opportunities,
       particularly when the promoter bases the recommendation on "inside"
       or confidential information.

       · Fraudsters are increasingly using the Internet to target particular
       groups through e-mail. If you receive an unsolicited e-mail from
       someone you don't know, containing a "can't miss" investment, your
       best move is to pass up the "opportunity" and forward the spam to the
       Securities and Exchange Commission at enforcement@sec.gov.



Affinity frauds can target any group of people who take pride in their shared
characteristics, whether they are religious, ethnic, or professional. The SEC
has investigated and taken quick action against affinity frauds targeting a
wide spectrum of groups.

Below is a listing of some notable cases of affinity fraud   (click on the headings for
more information):


· Armenian-American community loses $19 Million  The SEC's complaint alleges
that this affinity fraud targeted Armenian-Americans with little investment
experience, for some of whom English was a second language.

                                                                  African
· Criminal charges against South Florida man for $51.9 million fraud
American victims of this investment scheme were guaranteed that their
investments would generate a 30% risk-free and tax-free annual return.

                                                                This
· "Church Funding Project" costs faithful investors over $3 Million
nationwide scheme primarily targeted African-American churches and raised
at least $3 million from over 1000 investing churches located throughout the
United States. Believing they would receive large sums of money from the
investments, many of the church victims committed to building projects,
acquired new debt, spent building funds, and contracted with builders.

                                         The victims of this fraud were mainly
· Baptist investors lose over $3.5 Million.
African-American Baptists, many of whom were elderly and disabled, as well
as a number of Baptist churches and religious organizations located in a
number of states. The promoter (Randolph, who was a minister himself and
who is currently in jail) promised returns ranging between 7 and 30%, but in


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reality was operating a Ponzi scheme. In addition to a jail sentence, Randolph
was ordered to pay $1 million in the SEC's civil action.

                                                               The victims
· More than 1,000 Latin American investors lose over $325 Million
sought low risk investments. Instead, the promoter (who has been sentenced
to 12 years in prison) misappropriated their funds and lied about how much
money was in their accounts.

125 members of various Christian churches lose $7.4 million The fraudsters
allegedly sold members non-existent "prime bank" trading programs by using
a sales pitch heavily laden with Biblical references and by enlisting members
of the church communities to unwittingly spread the word about the bogus
investment.

$2.5 million stolen from 100 Texas senior citizens The fraudsters obtained
information about the assets and financial condition of the elderly victims
who were encouraged to liquidate their safe retirement savings and to invest
in securities with higher returns. In reality, the fraudsters never invested the
money and stole the funds.

                                    (Source: Securities and Exchange Commission)




How to Find Public Information on the Web about
Individual Banks
One way to get public information about an individual bank is to go to a Web
site maintained by a federal bank regulator:

             Office of the Comptroller of the Currency - national banks
             http://www.occ.treas.gov/index.htm

             Federal Reserve Board - state chartered banks that are
             members of the Federal Reserve System and bank holding
             companies http://www.federalreserve.gov/

             Federal Deposit Insurance Corporation (FDIC) - insured state
             banks that are not members of the Federal Reserve System
             http://www.fdic.gov/




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These agencies maintain records about the banks they supervise. If you want
to find out about a financial institution that is not a bank, you can visit the
Web site maintained by the Office of Thrift Supervision
[http://www.ots.treas.gov/ ]
regarding savings and loans, or the       Certificate of Deposit (CD) Fraud
National Credit Union
Administration                            A Texas man pled guilty in 2003 to mail
[http://www.ncua.gov/] regarding          and securities fraud, having sold about
credit unions.                            $6.5 million in fraudulent certificates of
                                         deposit (CDs) to nearly 80 investors.
If the bank you're interested in is a    The man never purchased the CDs,
national bank, you are already at        instead using the money he collected
the right site. The Office of the        for personal and business expenses and
Comptroller of the Currency (OCC)        to pay earlier investors, to keep the
maintains a variety of public            scheme going. Approximately $3.5
information about the national           million is still owed to his 45 victims.
banking system. If you do a search
about the bank you're researching                          - U.S. Postal Inspection Service
you may find a list of OCC
documents in which your bank is
mentioned. Documents can
include, for example, a corporate application filed by your bank to merge
with another bank or to engage in an innovative activity. You'll also find
evaluations of your bank's performance under the Community Reinvestment
Act (CRA), or information about an enforcement action the OCC may have
imposed (or withdrawn) on the bank. Since much of the public information
about a national bank is not available electronically, you also can contact the
OCC's Communications Divis ion to find out how to get paper-based
information.
                                      BEWARE OF EXPENSIVE LOANS
If you don't know which federal       DISGUISHED AS "INSTANT" TAX
agency is the primary regulator       REFUNDS
of the bank you're interested in,
you can go the Federal Deposit        Attorney General Lockyer warns
Insurance Corporation (FDIC)          Californians to beware of high-interest
Web site and click on the             loans disguised as "instant" or "rapid"
Institution Directory. Enter the      tax refunds. Lockyer says some
name of the bank and you will         storefront tax preparers are enticing
get a list of likely matches          consumers with offers of quick refund
(many banks have similar              cash that really are short-term loans
names). The FDIC is also a            that can carry annual interest rates of
good source to get statistical        more than 700 percent.
information about individual
banks, including national banks.      These so -called refund anticipation
For example, you can get              loans may require consumers to pay
                                      fees for tax preparation, electronic filing
                                      and check cashing for the so-called
                                      benefits.
                                        71
                                                  - Office of California Attorney General.
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demographic data and financial profiles derived from quarterly reports filed
with federal regulators. The Federal Reserve Board's National Information
Center of Banking Information [ http://www.ffiec.gov/nic/default.htm ] also
may be useful, because it has balance sheet and income information about
banks and bank holding companies.

                               (Source: Office of the Comptroller of the Currency)




Stock Fraud Via Answering Machine Messages


Press Release by the SEC:

Con Artists Using "Wrong Number" Answering Machine Messages to Snare
Victims in New Scam Sweeping Nation

Washington, D.C., Aug. 19, 2004 — The Securities and Exchange
Commission today issued an investor alert designed to warn Americans about
a new scam sweeping the country-answering machine "wrong number" stock
touts.

Voice mail messages are appearing on home answering machines from coast
to coast saying that the stock price of certain small, thinly traded companies
will soon shoot up. The breezy, intimate messages sound as if a female caller
mistakenly believes she has dialed a girlfriend and is confiding inside
information she has learned from "that hot stock exchange guy I'm dating."




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Regulators believe these voice mails are part of a "pump and dump" stock
manipulation scheme, whereby the people behind the messages intend to
profit by driving up the
price of their targeted
stocks, then selling, and    Fraudulent "Wrong Number" Call:
leaving victims with
losses. The SEC has          “Hey Tracy, it's Debbie! I couldn't find your old
received hundreds of         number and Tammy said this was your new one
complaints from investors    — I hope it's the right one. Anyway, remember
across the country about     Evan, that hot stock exchange guy I'm dating?
these misdirected voice      He gave my dad that stock tip on [stock
mails in recent days.        symbol] and it went from under a buck to like
                             three bucks in two weeks and you were mad I
"Investors should never      didn't call you? Well I'm calling you now. This
buy stocks on the basis      new company is supposed to be like the next
of 'hot' tips from           Tommy Bahama * and they're making some big
strangers," said SEC         news announcement this week. The stock
Investor Education           symbol is [stock symbol]. He said it's cheap
Director Susan Wyderko.      now, like $0.50. Sorry I'm eating but I'm
"We are concerned            starving. Its $.50 now and its going up to, like,
because the stock prices     5 o r 6 bucks this week, so get as much as you
of companies mentioned       can. Call me on my cell - I'm still in Orlando. Its
in these calls have gone     [phone number]. Dad and I are buying a bunch
up, presumably as people     tomorrow and I already called Kelly and Ron,
listen to the messages       too. Anyway, I miss you. Give me a call. Bye.
and buy. But in all 'pump
and dump' schemes, as        Hear this call at the SEC’s website:
soon as the promoter         http://www.sec.gov/investor/pubs/voicemail-
stops touting a stock, the   edited.wav
price plummets and other
investors lose their                       - Securities and Exchange Commission
money."

The SEC is asking investors who receive these kinds of calls to let them know
the company being touted, the exact date and time the call was received, the
number called, and the number from which the call was made, if available.
You can submit the information the SEC by email at Enforcement@sec.gov.



                                   (Source: Securities and Exchange Commission)




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Viatical Settlements


 LANGUAGE: “Viatical Settlement” - in a viatical settlement, the
 consumer (often with a terminal illness) assigns his or her life
 insurance policy to a viatical settlement company in exchange for a
 lump sum payment equal to a percentage of the policy's face value.
 The viatical settlement company then becomes the beneficiary to
 the policy, pays the premiums and collects the face value of the
 policy after the original policy-holder dies.
                                               - Federal Trade Commission




For Investors

A viatical settlement allows
you to invest in another        Viatical Settlement Fraud
person's life insurance
policy. With a viatical          A grand jury in Kentucky convicted the
settlement, you purchase        nation's largest viatical settlement company,
the policy (or part of it) at   its president and vice president, as well as a
a price that is less than the   viatical brokerage company and its chief
death benefit of the policy.    financial officer, on charges of mail fraud,
When the seller dies, you       wire fraud, and conspiracy. The defendants
collect the death benefit.      helped terminally ill patients obtain large life
                                insurance policies by falsifying their medical
Your return depends upon        conditions and arranging for healthy
the seller's life expectancy    imposters to take required medical exams.
and the actual date he or       The policies were then sold back to the
she dies. If the seller dies    settlement company, which collected more
before the estimated life       than $37 million in fraudulent assets. The
expectancy, you may             defendants received sentences ranging from
receive a higher return.        one year of probation to up to 14 years in
But if the seller lives longer  prison, and were ordered to pay a combined
than expected, your return      $661,292 in restitution to victims.
will be lower. You can even
lose part of your principal                      - U.S. Postal Inspection Service
investment if the person
lives long enough so that
you have to pay additional
premiums to maintain the policy.


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                               SMARTER INVESTING
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Viatical settlements can be risky investments. For these reasons, you should
exercise caution and thoroughly investigate before you consider investing in
a viatical settlement.

                                     (Source: Securities and Exchange Commission)




For Consumers

A Guide to Viatical Settlements for People with Terminal Illnesses

If you have a terminal illness -- or if you are caring for someone who is
terminally ill -- chances are you're giving a great deal of thought to time and
money. You may be thinking about life insurance, too. It's in that context
that you may hear the phrases accelerated benefits and viatical settlements.

Accelerated benefits sometimes are called "living benefits." They are the
proceeds of life insurance policies that are paid by the insurer to
policyholders before they die.
Occasionally, these benefits are
                                            Any decision that affects
included in policies when they are
                                            your life insurance benefits
sold, but usually, they are offered as
riders or attachments to new or             can affect the people who
existing policies.                          care for and about you.
                                             Before you make a decision,
Viatical settlements involve the sale of     talk to someone you trust --
a life insurance policy. If you have a       a lawyer, an accountant or a
terminal illness, you may consider           good friend.
selling your policy to a viatical
settlement company for a lump sum                       - Federal Trade Commission
cash payment. In a viatical settlement
transaction, people with terminal
illnesses assign their life insurance policies to viatical settlement companies
in exchange for a percentage of the policy's face value. The viatical
settlement company, in turn, may sell the policy to a third-party investor.
The viatical settlement company or the investor becomes the beneficiary to
the policy, pays the premiums, and collects the face value of the policy after
the original policyholder dies.

The fact is that any decision affecting life insurance benefits can have a
profound financial and emotional impact on dependents, friends, and care-
givers. Before you make any major changes regarding your policy, talk to



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someone whose advice and expertise you can count on -- a lawyer, an
accountant, or a good friend.




Investigate Your Options

Options exist for people with terminal illnesses when financial needs are
critical. For example, you may consider a loan from the original beneficiary of
your life insurance policy, accelerated benefits on your life insurance policy,
or a viatical settlement.

Many life insurance policies in force nationwide now include an accelerated
benefits provision. Companies offer anywhere from 25 to 100 percent of the
death benefit as early payment, but policyholders can collect these payments
only under very specific circumstances. The amount and the method of
payment vary with the policy.

Indeed, if you own a life insurance policy, call your insurance agent or
company to find out about your alternatives. Ask whether your life insurance
policy allows for accelerated benefits or loans, and how much it will cost.
Some insurers add accelerated benefits to life insurance policies for an
additional premium, usually computed as a percentage of the base premium.
Others offer the benefits at no extra premium, but charge the policyholder
for the option if and when it is used. In most cases, the insurance company
will reduce the benefits advanced to the policyholder before death to
compensate for the interest it will lose on its early payout. There also may be
a service charge.

In addition, you may consider selling your life insurance policy to a viatical
settlement company, a private enterprise that offers a terminally ill person a
percentage of the policy's face value. It is not considered an insurance
company.

The viatical settlement company becomes the sole beneficiary of the policy in
consideration for delivering a cash payment to the policyholder and paying
the premiums. When the policyholder dies, the viatical settlement company
collects the face value of the policy.

Viatical settlements are complex legal and financial transactions. They
require time and attention from physicians, life insurance companies,
lawyers, and accountants or financial planners. The entire transfer process
can take up to four months to complete.


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Eligibility for Viatical Settlements

Each viatical settlement company sets its own rules for determining which life
insurance policies it will buy. For example, viatical settlement companies may
want to know that:

· you've owned your policy for         For More Information on Viatical
at least two years; or your            Settlements:
policy has a reasonably large
face value;                             Affording Care 429 E. 52nd Street, Unit 4-G
                                       New York City, NY 10022-6431

· you have a waiver from               American Council of Life Insurance 1001
current or potential                   Pennsylvania Avenue, N.W. Washington, D.C.
beneficiaries; and                     20004-2599

· you are terminally ill.              National Association of Insurance
                                       Commissioners 444 North Capitol Street, N.W.
Usually, this means that death         Washington, D.C. 20001
is expected to occur within
two years.                             National Association of People With AIDS 1413
                                       K Street, N.W. Washington, D.C. 20005

Investors may insist that your
                                       National Viatical Association 7910 Woodmont
policy be from a company that
                                       Ave., Suite 1430 Bethesda, MD 20814
is large or well-known and one
that will be able to pay the
                                       North American Securities Administrators
death benefit. If your life            Association 555 New Jersey Avenue, N.W.
insurance policy is provided by        Washington, D.C. 20001
your employer, investors also
will want to know if it can be         Viatical Association of America 1200 19th
converted into an individual           Street N.W., Suite 300 Washington, D.C.
policy or otherwise be                 20036
guaranteed to remain in force
before it can be assigned.             Your State Attorney General or Office of
Finally, investors probably will       Consumer Protection
ask you to release all your
medical records to them.               Your State Insurance Commissioner or
                                       Department of Insurance

                                                 (Source: Federal Trade Commission)
Financial Implications

If you sell your policy to a viatical settlement company, you may owe federal
capital gains tax on the difference between the payment you receive and the
amount you've paid in premiums. You also may owe state tax, although



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several states, including California and New York, have made these
settlements tax-free.

Collecting accelerated benefits
                                      A Vulnerable Group
or making a viatical
settlement also may affect
                                      “One of the major [fraud targets] are the
your eligibility for public           people hitting close to retirement or who
assistance programs based on          have recently retired. They’ve been
financial need, such as               hammered in the stock markets for the last
Medicaid. The federal                 couple of years, or they’ve made bad
government does not require           decisions with mutual funds, or whatever.
policyholders either to choose        They don’t have the same opportunities they
accelerated benefits or cash in       had when they were younger, and as they
their policies before qualifying      get closer to the time when they really want
for Medicaid benefits. But            to sit back and relax -- so to speak, as the
once the policyholder cashes          sand passes through the hourglass -- those
in the policy and receives a          are the people that [investment scams] are
payment, the money may be             really hammering the hardest.”
counted as income for
Medicaid purposes and may                    -Eric Stein, sentenced to eight years in
affect eligibility.                          prison after he pleaded guilty to 73
                                             criminal counts, including mail fraud,
                                             securities fraud, conspiracy, and laundering;
The Congress currently is
                                             1,800 investors had lost $34 million.
considering a proposal to
change the tax code so that                        (Source: The Wall Street Journal)
accelerated benefits and
viatical settlements would be
excluded from taxes. Your lawyer or accountant will be able to tell you the
tax status of these payments. Up to now, payments of accelerated benefits
from an insurance company have been tax-exempt in some states. Because
viatical settlement companies are not considered insurance companies,
viatical payments generally have not been exempt from taxes in most states.

Guidelines for Consumers

The daily physical and emotional demands of a terminal illness can be
overwhelming, and financial burdens can seem insurmountable. If you are
considering making a viatical settlement on your life insurance policy -- or if
you are helping someone with this decision -- these consumer guidelines
should help you avoid costly mistakes and make the choice that's right.

· Contact several viatical settlement companies to make sure offers are
competitive, and be aware of prevailing discount rates. A viatical settlement
company may pay 60 percent of the face value of a policy to a person whose



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life expectancy is two years or less, and 80 percent to someone whose life
expectancy is six months or less.

· Check with your state insurance department to see if viatical settlement
companies or brokers must be licensed. If so, check the status of the
companies with whom you are considering doing business.

· Don't fall for high pressure tactics. You don't have to accept an offer, and
you can change your mind. Some states require a 15-day cooling off period
before any viatical settlement transaction is complete.

· Verify that the investor or the company has the money readily available for
your payout. Large companies may have cash on hand; smaller ones may
have uneven cash flows or may be "shopping" the policy to third parties.

· Ask the company to set up an escrow account with a reputable financial
institution at the beginning of the transfer so you can be sure the funds are
available to cover the offer.

· Insist on a timely payment. No more than a few months should elapse from
the initial contact with the company to closing. Check with your state
attorney general's office or department of insurance to see if there are
complaints against the company BEFORE you do business.

· Ask the company about possible tax consequences and implications for
public assistance benefits. Some states require viatical settlement companies
to make these disclosures and tell you about other options that may be
available from your life insurance company.

· Ask about privacy. Some companies may not protect a policyholder's
privacy when they act as brokers for payouts from potential investors.

· Contact a lawyer to check on the possible probate and estate
considerations. If you make a viatical settlement, there will be no life
insurance benefits for the person you originally designated as beneficiary.

                                              (Source: Federal Trade Commission)




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Promissory Note Fraud


 LANGUAGE: “Promissory Note” - a form of debt – similar to a loan
 or an IOU – that a company may issue to raise money. Typically, an
 investor agrees to loan money to the company for a set period of
 time. In exchange, the company promises to pay the investor a
 fixed return on his or her investment, typically principal plus
 annual interest.
                                   - Securities and Exchange Commission




While promissory notes can be legitimate investments, those that are
marketed broadly to individual investors often turn out to be scams.

Ask tough questions – and demand answers – before you consider investing
in a promissory note. Be sure you understand how they work and what risks
they pose. These tips will explain how promissory note fraud can occur and
will help you to spot the scams.

Anatomy of a Promissory Note Fraud

Fraudsters across the nation have recently begun to use promissory notes as
vehicles to defraud investors out of hundreds of millions of dollars. Most
promissory note scams follow predictable, fraudulent fact patterns:

The fraudsters – who may or may not be affiliated with the company –
persuade independent life insurance agents to sell promissory notes, luring
them with lucrative commissions of up to twenty or even thirty percent.
These agents often do not have a license to sell securities. And in selling the
notes, they frequently rely solely on the information the company gives them
– which later proves to be false or misleading.

Investors purchase the promissory notes, enticed by the promise of a high,
fixed-rate return – up to fifteen or twenty percent – with a very low level of
risk. The promissory notes may appear all the more attractive because the
seller falsely claims that they're "guaranteed" or insured. And few investors
ask tough questions about these investments because they know and trust
the sellers, insurance agents with whom they've done business in the past.




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The fraudsters use a portion       $10 Million Promissory Note Fraud
of the money they collect from
investors to pay the sellers       In 2003, four Virginia men were arrested
their commissions. But they
                                   for defrauding more than 200 investors.
typically abscond with the         The men promoted high-yield investment
rest, squandering it on            programs that allegedly returned rates
personal expenses or high-         above current market values, some as
flying life styles.                high as 10 percent monthly. They earned
                                   investors' trust by using religious beliefs
They may also use some of          and themes to promote the bogus
the proceeds to support an         programs. The defendants collected more
elaborate "Ponzi" scheme in        than $10 million under 17 business
which money coming in from         entities and reassured investors by
the sale of new notes pays the     issuing them "promissory notes," which
interest on older notes. Some      were fake. Victims were told their money
fraudsters try to avoid            was invested in overseas trading
repaying investors' principal      programs, international debentures and
by convincing investors to         bonds, the World Bank, and the
"roll-over" their promissory       International Monetary Fund, among
notes upon maturity. These         other places, but most of their money was
investors may, for at least a      deposited in the defendant's offshore
time, continue to receive          bank accounts to pay for personal
interest payments – but they       expenses and to pay interest to early
rarely get their principal back.   investors in a Ponzi-like scheme.

Promissory note scams often
target the elderly, bilking                       - U.S. Postal Inspection Service
them of their retirement
savings at a time when they
can least afford to lose it. But
no one is immune. Fraudsters rarely discriminate when it comes to
separating investors from their money. And most investors don't even realize
their investment dollars are at risk until it's far too late.

Tips To Avoid Promissory Note Scams

Here's how you can avoid the costly mistake of investing in a sham
promissory note:

Bear in mind that legitimate corporate promissory notes are not usually sold
to the general public. Instead, they tend to be sold privately to sophisticated
buyers who do their own "due diligence" or research on the company. If
someone calls you up or knocks on your door trying to sell you a promissory
note, chances are you're dealing with a scam.




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Find out whether the investment is registered with the SEC or your state
securities regulator – or whether it's exempt from registration. Most
legitimate promissory notes can easily be verified by checking the SEC's
EDGAR database or by calling your state securities regulator, which you can find
at the website of the North American Securities Administrators Association. If
the promissory note is not registered, you'll have to do your own thorough
investigation to confirm whether the company has the ability to pay its debt.

Be skeptical if the seller tells you that the promissory note is not a security.
The types of promissory notes involved in promissory note scams usually are
                                                   securities and must be
 $80 Million Promissory Note Fraud                 registered with either the SEC
                                                   or your state securities
 The president of Wellesley Service Inc. in        regulator – or they must meet
 Fort Dix, New Jersey, which merged                an exemption.
 waste-management and heating-oil firms
 for sale to larger conglomerates, pled            Make sure the seller is
 guilty on June 6, 2003, to mail fraud and         properly licensed. Insurance
 conspiracy to commit mail and tax fraud.          agents can't sell securities –
 Postal Inspectors alleged the president           including promissory notes –
 and his conspirators enlisted investors via       without a securities license.
 private placement ads and promissory              Call your state securities
 notes, guaranteeing them a 15 percent             regulator, and ask whether the
 annual return, plus a 50 percent "kicker"         person or firm is licensed to
 upon repayment. The president mailed              sell securities in your state
 letters to investors misrepresenting the          and whether they have a
 company's financial well-being and                record of complaints or fraud.
 impending deals, and requesting their             You can also get this
 notes be rolled over for increased                information by calling NASD's
 amounts, which most agreed to. Between            public disclosure hotline at
 1995 and 2001, more than 200 people               (800) 289-9999 or by visiting
 invested $80 million in the company,              their website.
 including a noted mystery writer who
 invested nearly $20 million. Rather than          Beware of promises of "risk
 using the money to fund operations, the           free" returns. These claims are
 president and others looted the company.          usually the bait con artists use
 The president collected nearly $30 million        to lure their victims. Always
 as part of a sham consulting agreement            remember that if it sounds too
 and had his personal expenses paid by             good to be true, it probably is.
 the company, including a $2.5 million
 home, his clothes, and cars. Sentencing is        Watch out for promissory
 pending.                                          notes that are supposedly
                  - U.S. Postal Inspection Service "insured" or "guaranteed,"
                                                   especially if a foreign
                                                   insurance company is


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involved. Be sure to call your state insurance commissioner to find out whether
the foreign insurance company can legally do business in the United States.

Compare the rate of return on the promissory note with current market rates
for similar fixed-rate investments, long-term Treasury bonds, or FDIC -
insured certificates of deposit. If the seller promises an above-market rate on
a short-term note, proceed with caution.

What To Do If You Run into Trouble

By law, you only have a limited time to take legal action - if you believe
you've invested in a promissory note scam, act promptly and contact the
Securities and Exchange Commission, your state securities regulator, and, if
an insurance agent sold you the promissory note, your state insurance
regulator.

For more information, read “Promissory Notes Can Be Less Than Promised”
at: www.nasd.com/Investor/Alerts/alert_promissorynote.htm

                                   (Source: Securities and Exchange Commission)




Automatic Debit Scams
Fraudulent telemarketers have found yet another way to steal your money,
this time from your checking account. Consumers across the country are
complaining about unauthorized debits (withdrawals) from their checking
accounts.

Automatic debiting of your checking account can be a legitimate payment
method; many people pay mortgages or make car payments this way. But
the system is being abused by fraudulent telemarketers. Therefore, if a caller
asks for your checking account number or other information printed on your
check, you should follow the same warning that applies to your credit card
number - do not give out checking account information over the phone
unless you are familiar with the company and agree to pay for something.
Remember, if you give your checking account number over the phone to a
stranger for "verification" or "computer purposes," that person could use it to
improperly take money from your checking account.

How The Scam Works



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You either get a postcard or a telephone call saying you have won a free
prize or can qualify for a major credit card, regardless of past credit
problems. If you respond to
the offer, the telemarketer
often asks you right away, "Do THE LAW CONCERNING THE REMOVAL OF
you have a checking account?"      FUNDS FROM YOUR BANK ACCOUNT:
If you say "yes," the
                                   Since December 31, 1995, a seller or
telemarketer then goes on to
                                   telemarketer is required by law to obtain
explain the offer. Often it
                                   your verifiable authorization to obtain
sounds too good to pass up.
                                   payment from your bank account. That
                                   means whoever takes your bank account
Near the end of the sales
                                   information over the phone must have
pitch, the telemarketer may
                                   your express permission to debit your
ask you to get one of your
                                   acco unt, and must use one of three ways
checks and to read off all of
                                   to get it. The person must tell you that
the numbers at the bottom.
                                   money will be taken from your bank
Some deceptive telemarketers
                                   account. If you authorize payment of
may not tell you why this
                                   money from your bank account, they
information is needed. Other
                                   must then get your written authorization,
deceptive telemarketers may
                                   tape record your authorization, or send
tell you the account
                                   you a written confirmation before debiting
informatio n will help ensure
                                   your bank account.
that you qualify for the offer.
And, in some cases, the                               - Federal Trade Commission
legitimate telemarketer will
honestly explain that this
information will allow them to debit your checking account.

Once a telemarketer has your checking account information, it is put on a
"demand draft," which is processed much like a check. The draft has your
name, account number, and states an amount. Unlike a check, however, the
draft does not require your signature. When your bank receives the draft, it
takes the amount on the draft from your checking account and pays the
telemarketer's bank. You may not know that your bank has paid the draft
until you receive your bank statement.



What You Can Do To Protect Yourself

It can be difficult to detect an automatic debit scam before you suffer
financial losses. If you do not know who you're talking to, follow these
suggestions to help you avoid becoming a victim:




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   · Don't give out your checking account number over the phone unless you
   know the company and understand why the informatio n is necessary.

   ·If someone says they are taping your call, ask why. Don't be afraid to
   ask questions.

   · Companies do not ask for your bank account information unless you
   have expressly agreed to this payment method.

Since December 31, 1995, a seller or telemarketer is required by law to
obtain your verifiable authorization to obtain payment from your bank
account. That means whoever takes
your bank account information over         Be very cautious if a supposedly
the phone must have your express           upright firm only lists a P.O. box
permission to debit your account, and      as an address.
must use one of three ways to get it.
The person must tell you that money
will be taken from your bank account. If you authorize payment of money
from your bank account, they must then get your written authorization, tape
record your authorization, or send you a w ritten confirmation before debiting
your bank account. If they tape record your authorization, they must
disclose, and you must receive, the following information:

   · he date of the demand draft;

   · The amount of the draft(s);

   · The payer’s (who will receive your money) name;

   · The number of draft payments (if more than one);

   · A telephone number that you can call during normal business hours; and

   · The date that you are giving your oral authorization.
If a seller or telemarketer uses written confirmation to verify your
authorization, they must give you all the information required for a tape
recorded authorization and tell you in the confirmation notice the refund
procedure you can use to dispute the accuracy of the confirmation and
receive a refund.




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What To Do If You Are A Victim

If telemarketers cause money to be taken from your bank account without
your knowledge or authorization, they have violated the law. If you receive a
written confirmation notice that does not accurately represent your
understanding of the sale, follow the refund procedures that should have
been provided and request a refund of your money. If you do not receive a
refund, it's against the law. If you believe you have been a victim of fraud,
contact your bank immediately. Tell the bank that you did not okay the debit
and that you want to prevent further debiting. You also should contact your
state Attorney General. Depending on the timing and the circumstances, you
may be able to get your money back.

                                                 (Source: Federal Trade Commission)




"Pre-IPO" Investing

 LANGUAGE: “Pre-IPO investing” refers to buying a stake in a
 company before the company makes its initial public offering of
 securities.


Many companies and stock promoters entice investors by promising an
opportunity to make high returns by investing in a start-up enterprise at the
ground floor level — often a new company that claims to be related to the
Internet or e-commerce.

But investing at the pre-IPO stage can involve significant risk for investors.
And pre-IPO offerings targeted at the general public — especially those that
are publicized through "spam" e-mails — are often fraudulent and illegal.
Consider the following:

· The Offering May Be Illegal – Any company that wants to offer or sell
securities to the public must either register the transaction with the SEC or
meet an exemption. Otherwise the offering is illegal, and you may lose every
penny you invest. The most common exemptions include those found in
Regulation D of the Securities Act. But to meet these exemptions, the
company and its promoters generally cannot advertise the offering or make
solicitations to the general public.




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· You're Buying Unregistered Securities – That means you may have an
extremely difficult time selling your securities if you want to liquidate before
the company goes public. You may also have a difficult time obtaining
current, reliable information about the company. In addition, if you purchase
or acquire restricted securities, you cannot sell those securities for at least one
year—even if the company goes public in the meantime.

· The Company May Never Go Public – In a growing number of cases,
fraudsters have focused on the predicted value and imminence of an alleged
IPO to lure—and pressure—investors. But don't be taken in by such false
promises. While some IPOs yield double- and even triple-digit returns, many
others don't or quickly fall back to levels far below the IPO price. In any
event, the fact remains that the company may never go public. And if that's
the case, you may never recoup your investment.

Before you even think about investing in any pre-IPO opportunity, be sure to
do your homework. At a minimum, you'll want to know:

· Details About the Offering – Is the securities offering subject to an
exemption? Remember, if it's neither registered nor exempt, it's illegal.
Check with your state securities regulator to find out whether they have any
information about the company, the offering, and the people promoting the
deal. You can also check with the SEC's Public Reference Room to see whether
the company has filed an offering circular under Regulation A or a Form D
under Regulation D. If you ultimately decide to invest, find out whether your
stock will be restricted in any way. And be sure to ask how, if at all, you can
liquidate your investment if the company does not go public.

· Information on the Company – What are its products and services? Who are
its customers? Does it have the physical plant, contracts, or inventory it
claims to have? Are audited financials available? If so, ask for copies and
review them carefully. We've seen over the years that the most successful
frauds typically start out with plausible lies. That's why you should always
independently verify claims about any company in which you plan to invest.

· Management's Background – Who runs the company? Have they made
money for investors in the past? Have any of them violated the law, including
any of the federal securities laws? Your state securities regulator may be able to
tell you whether the company and the people who run it have previously
defrauded investors.




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· The Existence and Identity of the               USE EXTREME CAUTION !
Underwriter – Has the company
retained an investment banking firm             The people and companies that
to underwrite the offering? If so,              promote fraudulent pre-IPO
which firm? Contact your state                  offerings often use impressive-
securities regulator to find out whether        looking websites, bulletin board
the firm has a history of complaints            postings, and e-mail spam to
or fraud.                                       exploit investors who scour the
                                                Internet looking for e-businesses
                                                in which to invest. To lure you in,
· The Identity and Disciplinary
                                                they make unfounded comparisons
History of the Promoter – How did
                                                between their company and other
you find out about the offering? If
                                                established, successful Internet
you heard about it from a stranger
                                                companies. But these and other
or saw a general advertisement,
                                                claims that sound so believable at
exercise extreme caution.
                                                first often turn out to be false or
Unscrupulous promoters typically try
                                                misleading
to lure in as many unwitting
investors as possible to maximize
                                                 - Securities and Exchange Commission
their returns. Be sure to check out
the disciplinary history of any
promoters with your state securities
regulator.

                                            (Source: Securities and Exchange Commission)



"High Yields"
We've all seen investment offers that promise to pay sky-high returns for what are at
best extremely risky propositions — and at worst are pure frauds. Here's a list of red
flags that we often find in many of the frauds we see.


       · If it sounds too good to be true, it is. Mom was right! Compare
       promised yields with current returns on well-known stock indexes. Any
       investment opportunity that claims you'll get substantially more could
       be highly risky. And that means you might lose money.


       · "Guaranteed returns" aren't. Every investment carries some degree
       of risk, and the level of risk typically correlates with the return you can
       expect to receive. Low risk generally means low yields, and high yields
       typically involve high risk. If your money is perfectly safe, you'll most
       likely get a low return. High returns represent potential rewards for
       folks who are willing to take big risks. Most fraudsters spend a lot of



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time trying to convince investors that extremely high returns are
"guaranteed" or "can't miss." Don't believe it.


· Check out the company before you invest. If you've never heard of a
company, broker, or adviser, spend some time checking them out
before you invest. Most
public companies make
electronic filings with the   FRAUDULENT WEBSITE
SEC. There are                Go to http://www.mcwhortle.com/ on
computerized databases        the internet to see an example of a
to check out brokers and      fraudulent website.
advisers. Your state
securities regulator may
have additional information. And by the way — if a supposedly upright
firm only lists a P.O. box, you'll want to do a lot of work before sending
your money!


· If it is that good, it will wait. Scam artists usually try to create a
sense of urgency — implying that if you don't act now, you'll miss out
on a fabulous opportunity. But savvy investors take time to do their
homework before investing. If you're being pressured to invest,
especially if it is a once-in-a-lifetime, too-good-to-be-true opportunity
that "just can't miss," just say "no." Your wallet will thank you.


· Understand your investments. Fraudsters frequently use a lot of big
words and technical-sounding phrases to impress you. But have faith
in yourself! If you don't understand an investment, don't buy it. If a
salesman isn't able to explain a concept clearly enough for you to
understand, it isn't your fault. Don't make it your problem by buying!


· Beauty isn't everything. Don't be fooled by a pretty website — they
are remarkably easy to create.

· An educated investor is the best defense against fraud!


                                   (Source: Securities and Exchange Commission)




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Prime Bank Note Fraud

International fraud artists have invented an investment scheme that offers
extremely high yields in a relatively short period of time. In this scheme,
they purport to have access to "bank guarantees" which they can buy at a
discount and sell at a premium. By reselling the "bank guarantees" several
times, they claim to be able to produce exceptional returns on investment.
For example, if $10 million worth of "bank guarantees" can be sold at a two
percent profit on ten separate occasions, or "traunches," the seller would
receive a 20 percent profit. Such a scheme is often referred to as a "roll
program." To make their schemes more enticing, con artists often refer to
the "guarantees" as being issued by the world's "Prime Banks," hence the
term "Prime Bank Guarantees." Other official sounding terms are also used
such as "Prime Bank Notes" and "Prime Bank Debentures." Legal documents
associated with such schemes often require the victim to enter into
nondisclosure and non-circumvention agreements, offer returns on
investment in "a year and a day", and claim to use forms required by the
International Chamber of Commerce (ICC). In fact, the ICC has issued a
warning to all potential investors that no such investments exist.

The purpose of these frauds is generally to encourage the victim to send
money to a foreign bank where it is eventually transferred to an off-shore
account that is in the control of the con artist. From there, the victim's
money is used for the perpetrator's personal expenses or is laundered in an
effort to make it disappear.

While foreign banks use instruments called "bank guarantees" in the same
manner that U.S. banks use letters of credit to insure payment for goods in
international trade, such bank guarantees are never traded or sold on any
kind of market.

Some Tips to Avoid Prime Bank Note Related Fraud:

Think before you invest in anything. Be wary of an investment in any
scheme, referred to as a "roll program," that offers unusually high yields by
buying and selling anything issued by "Prime Banks."

As with any investment perform due diligence. Independently verify the
identity of the people involved, the veracity of the deal, and the existence of
the security in which you plan to invest.

Be wary of business deals that require nondisclosure or non-circumvention
agreements that are designed to prevent you from independently verifying
information about the investment.


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                                            (Source: Federal Bureau of Investigation)




How Prime Bank Frauds Work

Prime bank programs often claim investors' funds will be used to purchase
and trade "prime bank" financial instruments on clandestine overseas
markets in order to generate huge returns in which the investor will share.
However, neither these instruments, nor the markets on which they allegedly
trade, exist. To give the scheme an air of
legitimacy, the promoters distribute documents        Be wary of any
that appear complex, sophisticated and official. The  investment that
sellers frequently tell potential investors that they offers the
have special access to programs that otherwise        promise of
would be reserved for top financiers on Wall Street,  extremely high
or in London, Geneva or other world financial
                                                      yields.
centers. Investors are also told that profits of
100% or more are possible with little risk.

Individuals and ent ities are targeted, including municipalities, charitable
associations and other nonprofit organizations. The promoters of these
schemes have demonstrated remarkable audacity, advertising in national
newspapers, such as USA Today and the Wall Street Journal. Some
promoters of these schemes avoid using the term "Prime Bank note," and tell
prospective investors that their programs do not involve prime bank
instruments in an effort to demonstrate that their programs are not
fraudulent. Regardless of the terminology, the basic pitch – that the program
involves trading in international financial instruments – remains the same,
and investors should continue to be vigilant against such fraud.




Signs of Banking-Related Investment Fraud

Below are warning signs of prime bank or other fraudulent bank-related investment
schemes.

Excessive Guaranteed Returns

These fraudulent investment pitches typically offer or guarantee spectacular returns
of 20 to 200 percent monthly, absolutely risk free. Promises of unrealistic returns at
no risk are hallmarks of prime bank fraud.

Fictitious Financial Instrument


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Despite having credible-sounding names, the supposed "financial instruments" at the
heart of any prime bank scheme simply do not exist. Exercise caution if you've been
asked to invest in a debt obligation of the top 100 world banks, Medium Term Bank
Notes or Debentures, Standby Letters of Credit, Bank Guarantees, an offshore
trading program, a roll program, bank-issued debentures, a high yield investment
program, or some variation on these descriptions. Promoters frequently claim that
the offered financial instrument is issued, traded, guaranteed, or endorsed by the
World Bank (Department of Institutional Integrity (INT) or Operations Evaluation
Department) , International Monetary Fund (IMF), Federal Reserve, Department of
Treasury, International Chamber of Commerce (ICC), or an international central
bank.

Extreme Secrecy

Promoters claim that transactions must be kept strictly confidential by all
parties, making client references unavailable. They may characterize the
transactions as the best-kept
secret in the banking industry,    If an "opportunity" appears too good
and assert that, if asked, bank    to be true, it probably is.
and regulatory officials would
deny knowledge of such
instruments. Investors may be asked to sign nondisclosure agreements.

Exclusive Opportunity

Promoters frequently claim that investment opportunities of this type are by
invitation only, available to only a handful of special customers, and
historically reserved for the wealthy elite.

Claims of Inordinate Complexity

Investment pitches frequently are vague about who is involved in the
transaction or where the money is going. Promoters may try to explain away
this lack of specificity by stating
that the financial instruments are    Don’t invest in anything unless
too technical or complex for non-     you understand every aspect of
experts to understand.                the deal. Con artists rely on
                                           complex transactions and faulty
You should be especially watchful for       logic to "explain" fraudulent
prime-bank related schemes promoted
over the Internet. Despite numerous
                                            investment schemes.
SEC actions charging prime bank
promoters with multiple violations of
the federal securities laws, prime bank offerings continue to proliferate in
cyberspace.




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Announcements of Selected SEC Enforcement Actions Related to Prime Bank
Fraud - http://www.sec.gov/divisions/enforce/primebank/pbaction.shtml

                                        (Source: Securities Exchange Commission)




Letter of Credit Fraud


 LANGUAGE: “Letter of Credit” - a letter or document issued by a
 bank authorizing the bearer to draw a stated amount of money
 from the issuing bank; guarantees the payment of a customer's
 draft by substituting the bank's credit for the customer's credit.
 Generally used to facilitate and streamline trade.




Legitimate letters of credit are never sold or offered as investments.

Legitimate letters of credit are issued by banks to ensure payment for goods
shipped in connection with international trade. Payment on a letter of credit
generally requires that the paying bank receive documentation certifying that
the goods ordered have been shipped and are en route to their intended
destination.

Letters of credit frauds are often         "Letters of Credit" are never
attempted against banks by providing       legitimate investments -
false documentation to show that           anything being sold as such is
goods were shipped when, in fact, no       a scam.
goods or inferior goods were shipped.
                                               - Federal Bureau of Investigation
Other letter of credit frauds occur
when con artists offer a "letter of credit" or "bank guarantee" as an
investment wherein the investor is promised huge interest rates on the order
of 100 to 300 percent annually. Such investment "opportunities" simply do
not exist.

                                         (Source: Federal Bureau of Investigation)




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Fraudulent So-Called "Limited Edition" U.S. Treasury Securities

The Securities and Exchange Commission (SEC) warned investors and
financial institutions to beware of an investment scheme involving so-called
"Limited Edition" United States Treasury securities. According to the U.S.
Department of Treasury, “Limited Edition” securities do not exist.

No matter what anyone tells you, there’s no such thing as a "Limited Edition"
Treasury. It’s a scam.
                                Independently verify the terms of any
Overseas con artists are        investment that you intend to make,
trying to defraud banks,        including the parties involved and the
broker-dealers and other        nature of the investment.
financial institutions by
offering to sell and structure
transactions in these bogus securities. As part of the scheme, the con artists
are seeking banks to act as go -betweens for sales of these fictitious
securities.

The sales pitch for the scam misrepresents the way legitimate U.S.
Treasuries may be issued, bought or sold. It also describes the "Limited
Edition" Treasury securities as:

             having a term of 10 years,

             yielding an annual interest rate of 6%,

             requiring a minimum purchase amount of $100 million,

             having an initial price of 57% of face value,

             having an unspecified offering amount (available for sale until
             "exhausted"), and

             being issued in physical (paper) form.



                                  (Source: Securities and Exchange Commission )




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Franchise and Business Opportunities
Want to be your own boss? A franchise or business opportunity may sound
appealing, especially if you have limited resources or business experience.
However, you could lose a significant amount of money if you don't
investigate a business carefully before you buy.

FTC Rules

The Federal Trade Commission's Franchise and Business Opportunity
Rule requires franchise and business opportunity sellers to give you specific
information to help you make an informed decision.



A franchise or business opportunity seller must give you a detailed disclosure
document at least 10 business days before you pay any money or legally
commit yourself to a purchase. You can use these disclosures to compare a
particular business with others you may be considering or simply for
information. The disclosure document includes:

   · names, addresses and telephone numbers of at least 10 previous
   purchasers who live closest to you;

   · a fully audited financial statement of the seller;

   · background and experience of the business' key executives;

   · cost of starting and maintaining the business; and

   · the responsibilities you and the seller will have to each other once
   you've invested in the opportunity.

If the seller doesn't give you a disclosure document, ask why. Verify the
explanation with an attorney, a business advisor or the FTC by calling its toll-
free helpline at 1-877-FTC-HELP (382-4357). Even if the business is not
legally required to provide a disclosure document, you still may want o ne for
your own information.

Get All the Facts
Before you buy a business:

· Study the disclosure document and proposed contract carefully.




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· Interview current owners in person. (They should be listed in the disclosure
document.) Visiting them in person may help you identify any that are
"shills"-people paid to give favorable reports. Don't rely on a list of
references selected by the company because it may contain shills. Ask
owners and operators how the information in the disclosure document
matches their experiences with the company.

· Investigate claims about your potential earnings. Some companies may
claim that you'll earn a certain income or that existing franchisees or
business opportunity purchasers earn a certain amount. Companies making
earnings representations must provide you with the written basis for their
claims. Be suspicious of any company that does not show you in writing how
it computed its earnings claims.

· Sellers also must tell you in writing the number and percentage of owners
who have done as well as they claim you will. Keep in mind that broad sales
claims about successful areas of business-"Be a part of our $4 billion
industry," for example-may have no bearing on your likelihood of success.
Also, recognize that once you buy the business, you may be competing with
franchise owners or independent business people with more experience than
you.

· Shop around. Compare franchises with other business opportunities. Some
companies may offer benefits not available from the first company you
considered. The Franchise Opportunities Handbook, published annually
by the U.S. Department of Commerce, describes more than 1,400 companies
that offer franchises. Contact those that interest you. Request their
disclosure documents and compare their offerings.

The International Franchise Association sponsors shows throughout the
country and carefully screens the exhibitors. It publishes The Franchise
Opportunities Guide, which contains basic information on more than 2,400
franchise companies. The book can be ordered by calling 800- 543-1038. The
Franchise Opportunities Handbook can be obtained from the U.S. Department
of Commerce by calling 202- 783-3238.

· Listen carefully to the sales presentation. Some sales tactics should signal
caution. For example, if you are pressured to sign immediately "because
prices will go up tomorrow," or "another buyer wants this deal," slow down. A
seller with a good offer doesn't use high-pressure tactics. Under the FTC rule,
the seller must wait at least 10 business days after giving you the required
documents before accepting your money or signature on an agreement. Be
wary if the salesperson makes the job sound too easy. The thought of "easy
money" may be appealing, but success generally requires hard work.




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· Get the seller's promises in writing. Any oral promises you get from a
salesperson should be written into the contract you sign. If the salesperson
says one thing but the contract says nothing about it or says something
different, it's the contract that counts. If a seller balks at putting oral
promises in writing, be alert to potential problems and consider doing
business with another firm.

· Consider getting professional advice. Ask a lawyer, accountant or business
advisor to read the disclosure document and proposed contract. The money
and time you spend on professional assistance, and research-such as phone
calls to current owners-could save you from a bad investment decision.

                                            (Source: Federal Trade Commission)




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         Securities and Exchange Commission (SEC)
The primary mission of the U.S. Securities and Exchange Commission (SEC)
is to protect investors and maintain the integrity of the securities markets.

Website: www.sec.gov

Online Complaint Forms: www.sec.gov/complaint/selectconduct.shtml

SEC Headquarters                             Midwest Regional Office
450 Fifth Street, NW                         Kentucky, Illinois, Indiana, Iowa,
Washington, DC 20549                         Michigan, Minnesota, Missouri, Ohio,
Office of Investor Education and             Wisconsin
Assistance                                   175 W. Jackson Boulevard
(202) 942-7040                               Suite 900
e-mail: help@sec.gov                         Chicago, IL 60604
                                             (312) 353-7390
                                             e-mail: chicago@sec.gov

Northeast Regional Office
Connecticut, Delaware, District of
Columbia, Maine, Maryland,                   Central Regional Office
Massachusetts, New Hampshire, New            Arkansas, Colorado, Kansas,
Jersey, New York, Pennsylvania, Rhode        Nebraska, New Mexico, North Dakota,
Island, Vermont, Virginia, West              Oklahoma, South Dakota, Texas, Utah,
Virginia                                     Wyoming
233 Broadway                                 1801 California Street, Suite 1500
New York, NY 10279                           Denver, CO 80202-2656
(646) 428-1500                               (303) 844-1000
e-mail: newyork@sec.gov                      e-mail: denver@sec.gov



Southeast Regional Office                    Pacific Regional Office Idaho,
Alabama, Florida, Georgia, Louisiana,        Montana, Nevada, Oregon, Washington
Mississippi, North Carolina, Puerto          Alaska, Arizona, California, Guam,
Rico, South Carolina, Tennessee,             Hawaii,
Virgin Islands                               5670 Wilshire Boulevard, 11th
801 Brickell Ave., Suite 1800                Floor
Miami, FL 33131                              Los Angeles, CA 90036-3648
(305) 982-6300                               (323) 965-3998
e-mail: miami@sec.gov                        e-mail: losangeles@sec.gov




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                   State Securities Regulators
LIST OF ALL STATE SECURITIES REGULATORS:
http://www.nasaa.org/nasaa/abtnasaa/find_regulator.asp
Or call The North American Securities Administrators Association
(NASAA) for the name, phone number, and address of your local
securities regulator toll-free at: (888) 846-2722




                    State Insurance Regulators
LIST OF ALL STATE INSURANCE REGULATORS:
http://www.naic.org/state_contacts/sid_websites.htm




                Federal Trade Commission (FTC)
The FTC works for the consumer to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information to help
consumers spot, stop and avoid them.

Website: www.ftc.gov

Online Complaint Forms: https://rn.ftc.gov/pls/dod/wsolcq$.startup

FTC Headquarters
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(877) 382-4357




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