What you can do to avoid being the victim of a scam

BOSTON — Glancing through the headlines, it might seem like an epidemic. No, we're not talking swine flu; we're talking investment scams. Consider just a few recent headlines:

* Denver duo bilks seniors in green scheme

* Former life insurance agent denies scamming $2 million from seniors

* Ex-Morgan Stanley rep barred for defrauding 97-year-old's charity

These cases serve as a reminder to make sure that you don't become a fool, separated needlessly from your hard-earned money. So what can you do? Consumer advocacy groups and regulators say there's much you can do.

A promoter promising high returns with little or no risk? That's the biggest red-flag warning for possible investment fraud, said Andres Castillo, who heads AARP's free-lunch monitor program. (At free-lunch seminars, attendees are promised a free lunch in return for listening to what is generally a product sales pitch.)

For instance, in the most recent case of its kind, the SEC charged four individuals and two companies involved in perpetrating a $30 million Ponzi scheme in which they persuaded more than 300 investors nationwide to participate in purported "green" investment opportunities.

The SEC alleged that "Wayde and Donna McKelvy, who were previously married and living in the Denver area, particularly targeted elderly investors or those approaching retirement age to finance such 'green' initiatives of Pennsylvania-based Mantria Corp. as a supposed 'carbon negative' housing community in rural Tennessee and a 'biochar' charcoal substitute made from organic waste."

According to the SEC, with the help of two other promoters (Mantria executives, we might note) the McKelvys convinced investors attending seminars or participating in Internet seminars to liquidate their traditional investments such as retirement plans and home equity to instead invest in Mantria.

They allegedly promised returns ranging from 17 percent to "hundreds of percent" annually. The actual returns were, sadly, closer to zero. Yes, Speed of Wealth, the firm headed by the McKelvys, was promoting an investment that had no revenue whatsoever. And more sadly still, it was easy to be taken by this deal. The Speed of Wealth seminars were heavily advertised on TV, and even featured former Denver Bronco John Elway, according to published reports.

To be sure, not all free-lunch seminars — such as those offered by Speed of Wealth — are bad. But regulators and advocacy groups say you should never attend a free-lunch seminar without making sure you know exactly what you're getting into. The results of one recent study make it clear why.

Almost 6 million Americans age 55 and older have attended a free lunch or dinner seminar in the past three years, according to "Protecting Older Investors: 2009 Free Lunch Seminar Report," a survey just released by AARP and the North American Securities Administrators Association.

And many seminars were nothing but venues to acquire clients, slaughterhouses for lambs if you will.

Castillo didn't go so far as to say you should never attend a free-lunch seminar, but he did say you should attend with a checklist in hand, a checklist that gives you the power to decipher fraudulent educational presentations.

In response to the growing number of free-lunch seminars offering information about investment opportunities, AARP in collaboration with NASAA launched in October 2008 the Free Lunch Monitor Program.

Investigating the people doing the pitching and the products being pitched are the two most important things you can do to protect yourself from scams.

"Don't invest without doing those two things," Castillo said.

Indeed, you should investigate the licenses, credentials, and qualifications of the people and firms conducting the seminars. That's not as easy it sounds. People and firms are likely to be registered or licensed with multiple authorities, which makes it all the harder to do the required due diligence. For instance, a promoter might be an insurance agent (state regulated), a broker (Financial Industry Regulatory Authority), a registered investment adviser (SEC or state securities division), and a ChFC or some other designation regulated by yet another type of organization.

Castillo also said you need to investigate the products being pitched. Is it registered with the appropriate authorities? Again, this might not be the easiest of tasks. A variable annuity, for instance, is typically registered with federal and state authorities. But you wouldn't know that unless you knew that.

To be sure, doing these two things is hard work. But doing them could make all the difference between protecting your nest egg and having it cracked.