Don't let a touch of "gold fever" sucker your clients into what very might well be the latest gold-plated investor scam.
To help protect investors from such potential "golden cons," the Financial Industry Regulatory Authority today issued an investor alert, "Gold" Stocks--Some Investments Mine Your Pocketbook, ostensibly to warn investors about investment scams that promote gold stocks.
The Finra alert also provides information on how to invest in legitimate gold investments.
With the price of gold bullion at record levels, there has been a proliferation of blogs, Web sites, YouTube videos and Tweets centered on investing in gold. And while legitimate gold investments are discussed online, Finra officials are concerned that some investors may fall prey to gold-related investment scams.
"Con artists are using the run-up in the price of gold as a hook to part investors from their money," said Gerri Walsh, vice president for investor education for Finra. "Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies."
Finra officials say such gold scams may center on inflated claims regarding the stocks of gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify.
To wit: The Securities and Exchange Commission took legal action against a mining company based in Florida for false press releases claiming that a mining project in Ecuador contained gold reserves worth more than $1 billion.
Gold investments may also be touted in free-lunch seminars and pushed by boiler-room operations, say Finra officials.
The SEC charged six individuals for running a recent Ponzi scheme that used investment seminars to bilk 3,000 investors across the United States and Canada out of $300 million. Separately, the Commodity Futures Trading Commission took three actions against precious metals firms, including charging a boiler-room telemarketing firm that purportedly purchased more than $23 million of precious metals for their customers.
Finra's alert cautions investors to be on the lookout for any pitch for a gold investment that:
claims to tie stock performance to the general rise in gold prices -- a rise in gold prices does not guarantee a rise in the price of a gold company's stock;
uses scare tactics such as the threat of inflation or an economic meltdown;
makes speculative claims based on a new reserve's proximity to an existing reserve, or
centers on a company that has changed its name or trading symbol to align it more closely with gold -- for example, one company that currently purports to engage in gold mining was originally incorporated to provide golfing opportunities on private courses to nonmembers.
Finra officials also advise investors that while legitimate gold and ETF investments may be an acceptable diversification strategy, these investments can be quite volatile.
And a heavy concentration of gold investments can leave investors overly exposed and at risk of losing a substantial percentage of their money, according to its alert.
- Jim McConville