Bait & Switch

By Bryan Rafie, Spring 2016 Student Intern

We have all experienced it. You see an ad in the paper or online. It is just what you have been looking for, and the price is unbelievable. No, seriously, as in you can’t believe it. On the rare occasion that you actually convince yourself to look into it, you always discover it was just a gimmick or there is a catch. Another good example is a time-share. You get an invitation for a free 3 night stay at a great hotel. All you have to do is sit through a short talk about time-shares. We all have heard the story before. Most of us decide not to bother.

CDs, or certificate of deposits, are bank accounts that pay a fixed interest over a period of time as long as the money in the account is not withdrawn. These accounts are very important to older investors, because they are FDIC insured and the principal balance of the account is guaranteed. This means that you can earn interest on your deposits and not have to take any risk in the market.

In today’s market however, rates on CDs are at an all time low. This means that older investors are often looking for safe places to both earn return in more obscure places. Enter the High-Yield CD Offer. Much like the time share, certain firms are marketing high-yield cd rate promotions. The interested investors are required to go into the office to claim their rates, and they are forced to sit down with an adviser. That adviser will then pitch a much different product, normally entailing more risk. The pitch will be high pressure in an effort to get the investor to agree to forgo the special rate on the CD and buy the security.

The really ugly side of this issue is that in many cases it is not even the bank making the CD rate available. The special interest rate is actually a “bonus” that the firm pushing the security will pay the investor for just listening to the pitch.

It’s very important that investors receiving these kinds of offers ask questions and turn to third parties for help. A good option is the investor’s state insurance commission or FINRA’s Securities Helpline for Seniors (844) 57-HELPS). Some investors might be willing to take the risk to get away with the bait, but remember, don’t be a fish, know what you’re getting into.

Wednesday’s Word: Diversification

By Geoff Hafer, Spring 2016 Student Intern

What is Diversification?

Perhaps the simplest explanation can be provided by the old proverb “Don’t put all your eggs in one basket.” Diversification seeks to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate. It is possible to diversify both within and among different asset classes depending on investor needs. For more information see FINRA’s Diversifying Your Portfolio.

Why Diversify? Continue reading

Investor Alert – IRS Impersonation Scam: As if paying taxes wasn’t enough!

By Geoff Hafer, Spring 2016 Student Intern

So you are relaxing at home, feeling pretty good about life in general, when the phone rings. Someone on the other line claiming to be from the IRS…ugh, you think, this can’t be good…little did you know it’s about to get a lot worse. The “IRS agent” demands your immediate payment on taxes or face serious consequences. Before you even know what happened, you are wiring funds or using a pre-paid debit card to settle your tax obligations to ensure you are not arrested or have your driver’s license revoked. You have just become a victim of an IRS impersonation scam.

You would not be alone. According to FINRA, since October 2013, there have been reports of approximately 736,000 contacts and approximately 4,550 victims who have collectively paid over $23 million as a result of the scam! Even more frightening is that the scam has hit taxpayers in every state in the country and is becoming more and more prevalent.

So how can you protect yourself from becoming a victim? Continue reading

Twitter: Not Your New Broker

By Siri Yellamraju, Spring 2016 Student Intern

Twitter is a great place to get updates about Kim Kardashian’s latest drama. Facebook is the best place to catch up on your family’s drama. Instagram is where you follow that cool friend you live vicariously through on her exotic trips. These are not, however, the places to find sound investment advice.

Although Twitter, Snapchat and Facebook have become frontrunners in reporting news, they are not the best mediums to solely rely on for investment advice. Many prominent and prestigious news companies use Twitter to relay information to the public. The problem and benefit of social media is, however, that anyone and everyone has their own platform.

This is why the SEC has advised investors to be aware and wary of fraudsters that may try to manipulate stock prices by spreading false information through social media. Continue reading

Investor Alert: Telephone Scams

By Michael Williford, Spring 2016 Student Intern

Previous Investor Alerts have focused on everything from ways to avoid fraud online, frauds perpetrated via social media, and investment scams involving legal documents you might receive in the mail.

More recently, FINRA, the organization that regulates financial industry professionals, has issued an investor alert reminding investors that frauds can still be perpetrated on unwary investors the old fashioned way—over the phone. Specifically, the alert focuses on an IRS impersonation scam with which you may already be familiar. The scammers claim to be from the IRS. They sound official and use high pressure tactics like the threat of arrest or driver’s license revocation to persuade a victim to fork over his hard earned money to pay a tax bill immediately, despite the fact the victim owes no delinquent taxes.

Psychologists and behavioral economists explain that scammers use these tactics to build what they refer to as “source credibility” to influence a victim to lower his guard because he believes the scammer when he says he is from a reputable agency. In the case of the IRS scam it often involves using fake badge numbers, “spoofing” the IRS toll-free number on your caller ID, along with fake emails designed to soften up the victim so that when the scammer calls, the victim may already be expecting to hear from the IRS about a tax bill.

This trend is part of a larger effort by scammers to prey on senior citizens. Although FINRA and other governmental organizations are attempting to combat the exploitation of elderly investors, the FBI and organizations dedicated to protecting seniors say the best defense is to be familiar with the latest scams, and to very be skeptical of anyone who phones you demanding immediate payment via a wire transfer or prepaid debit card.

Regarding the IRS, it is important to remember the IRS will never demand money over the telephone, and all tax matters are handled by the IRS through the mail via a written notification. Taxpayers always have the right to officially challenge a tax bill they believe is in error.

Stay safe and protect your nest egg from would be IRS impersonators. Investigate all claims of delinquent tax bills, and don’t be afraid to ask questions of the IRS before you transfer money to anyone over a tax bill. You can figure out how to contact your local IRS office with questions here.

Wednesday’s Word: Alternative Investments

By Michael Williford, Spring 2016 Student Intern

The past several years have seen a rise in the popularity of “Alternative Investments,” an amorphous class of investment options that include everything from private equity funds to baseball cards, including sophisticated and volatile categories like rare metals, derivative contracts and art. Alternative Investing as a strategy grew in popularity as returns on more traditional investments nose-dived during the throes of the Great Recession.

So, what does the term really mean? Continue reading

GSU Students: Learn More About the Investor Advocacy Clinic

Investor Advocacy Clinic Shoot

GSU Law Students: Are you interested in learning more about the Investor Advocacy Clinic?  Join us today, February 17, at the Experiential Course Information Fair at 12:00 p.m. or 5:00 p.m. in the atrium.  Clinic representatives will be on hand to answer your questions.