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Investment scams: Financial crimes of the worst kind
by Mary Lynn Dahl


March 31, 2005

Dear Sitnews:

We have been following the PIPS discussion with interest. As long-time investment professionals, we hear of similar schemes from time to time. After careful investigation of the PIPS investment program, we believe that it has all of the red flags that indicate an investment scam. It has now been reported to the FBI, SEC and Alaska State investment regulators for review and investigation.

The reason an investment scam works is that it uses the basic psychology of appealing to the greed of people wanting to "beat the market" and it further targets unsophisticated victims who believe it will make lots of money for them because they want it to, not because it is truly reasonable.

In the US, investment firms must register with the state in which they do business or with the US Securities & Exchange Commission (SEC), except Hedge Funds, which will be required to begin SEC registration next year. Unregistered investment programs are illegal and usually either run off with investors' money before they can be shut down by the regulators, or get caught in their fraud scams and prosecuted in court. Unregistered investment programs in and of themselves raise the first red flag, particularly those that accept minimal contributions that they claim will turn into large future payments, fail to completely disclose how they do what they claim to be able to do and advertise
double or triple digit rates of return. After visiting the PIPS website, I calculated that it requires a rate of return of approximately 320% every year in order to accumulate the amount of money PIPS advertises. Clearly, this is ridiculous. Unfortunately, some people do believe it and that leads to the next victim, then the next, and so on.

As explained before, the classic investment scam is a Ponzi scheme, but there are also scams called Affinity Fraud, Internet Fraud, Unregistered Products, Senior Investment Fraud, High Yield Investment Fraud, Prime Bank Schemes, Arbitrage Fraud, Pump & Dump Schemes, Commodities & Futures Schemes, Advance Fee Loan Scams, Membership Program Scams (like PIPS) and endless variations invented daily.Most of them are based on the classic Ponzi scheme in which early investors are paid with the money being contributed by later investors.

Bill Gates and Warren Buffet have never been involved in any kind of scam, nor can any of their investment ideas, businesses, or investments be compared in any way to the Ponzi schemes and scams that I am referring to in this letter. Gates and Buffet have always dealt in and promoted legal, public, fully-disclosed, registered and legitimate investments. Making any comparison between them and PIPS is like comparing apples to oranges, only worse. Gates and Buffet would probably be mortified beyond words to think that anyone would compare their business and investment genius to something like PIPS.

A recent scam in Florida, reported by The Economist, a highly-respected British publication, resulted in the closure of a so-called investment firm, a loss of over $200 million from unsophisticated investors, arrest of 2 individuals and 1 individual disappearing, reportedly most likely to Asia or Indonesia, where there is almost no regulation of this kind of illegal activity.

The State of Alaska has published a warning to the public recently of a scam called "Women's Empowerment Network" or "Original Dinner Party" which started in Canada, spread to the US, boomed in Seattle, and promises a $40,000 payoff on a $5,000 investment (like PIPS). A huge Ponzi scheme now operating, per another published warning from the State of Alaska, is called Le Club Prive, which claimes to build wealth through secret offshore investing, but this is absolutely false according to the Alaska regulators.

According to the SEC, the North American Securities Administration Association and the State of Alaska, you should consider the following:

  • If it appears too good to be true, it usually is.
  • There is no "secret" investment.
  • There is no risk-free investment or guarantee of profits.
  • Astronomical (as in 320% per year) returns likely are the result of fraudulent investments or are, in fact, lies.
  • Legitimate investments offer public documentation of proof.
  • Legitimate investments do not require that you make a quick decision.
  • Legitimate investment companies are registered and regulated.
  • Con artists are expert at conning.... and feeding on the greed in people.
  • The phrase "Everyone else that invested in this did very well" is a sure sign of a con artist at work. Trust your inner voice if you hear this one.
  • Ditto if you hear "This deal is so great that I invested in it myself".
  • Double ditto if you hear "Information about this investment is private and may not be published, made public or divulged in any way". This is a blatant red flag that should alert anyone that they are looking at a scam.

I understand that people who fall for the scam may be embarrassed and defensive about admitting that they have been fooled. However, I urge anyone who is involved with PIPS, any other scam, or knows of any victims of any scam, to set aside their emotions and talk to the regulators. If it is legitimate, it will continue to operate legally, but if it is a scam, it can be shut down before more victims get lured into participating.

You can report scams or ask questions by going to:

The US Securities & Exchange Commission
Office of Investor Education & Assistance
450 Fifth Street NW, Mail Stop 0804
Washington DC 20549-0213
Fax # 202-942-9634

State of Alaska
Division of Securities
Juneau, Alaska

Investment scams are financial crimes of the worst kind. I hope that by offering these hard facts, these historical examples and the warnings from regulators all over the US that people will understand that when they participate in a scam, they allow it to operate freely, thereby enabling the crime to go on. It is not a matter of how you spend your money; it is a matter of allowing criminals to steal money from many innocent victims. Although I would state my opinion differently than David Hanger did, I agree with his analysis of the issue and thank David for bringing this matter to the public via Sitnews. This is a very important and complicated subject, and I must also thank Sitnews for being patient enough to publish not only Mr. Hanger's letters but also for publishing this one. If it results in one less victim, it has been worthwhile.

ML Dahl
Ketchikan, AK - USA


Related Viewpoints:

letter "LOCAL PIPSTERS" by Anna Kinsman - Ketchikan, AK - USA

letter PIPS: Ponzi Scam of Interest to FBI by David G. Hanger - Ketchikan, AK - USA

letter PIPS: Better off burning your money by David Hanger - Ketchikan, AK - USA

letter FRAUD ALERT - PIPS; "If it's too good to be true, it's too good to be true." by David G. Hanger - Ketchikan, AK - USA


Note: Comments published on Viewpoints are the opinions of the writer
and do not necessarily reflect the opinions of Sitnews.



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