Corporate & Securities Law

Private Placement Offerings, Leveraged ETFs: What You Should Know

By Mark Maddox

Private placement offerings and leveraged ETFs (exchange-traded funds) are among the investments that con artists turn to as a way to scam innocent victims. Private placements in particular have been in the news lately, with their issuers - i.e. Medical Capital Holdings and Provident Royalties - accused of committing fraud.

As reported April 9 by CNBC, it?s become increasingly commonplace for investors to find themselves a victim of an investment scam or con. According to the North American Securities Administrator Association (NASAA), senior citizens are the No. 1 target for fraud, with baby boomers ranking a close second. In 2008, the FBI estimated that some $40 billion was lost to securities and commodities fraud.

In addition to private placement offerings, leveraged ETFs rank high in terms of potential abuse for fraud. While legitimate financial products, ETFs are complicated investments that trade on a daily basis. ETFs use exotic financial instruments, including derivatives, to generate better returns than the market return. This potential volatility, along with the increased exposure to risk, may make ETFs an unsuitable investment for most retail investors.

The best way to prevent fraud is to do your homework. If you suspect a deal is too good to be true, contact your state securities regulator. You also can find out if the person selling the offering or investment is registered with the Financial Industry Regulatory Authority (FINRA) on FINRA?s BrokerCheck Web site.

Another red flag to be aware of: Guarantees of a high rate of return on unregistered securities.

Full post as published by Representing Investors on April 12, 2010 (boomark / email).