State urges residents
beware investment scams

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Star-Bulletin staff

Responding to volatile financial markets and horror stories from the mainland, the state Department of Credit and Consumer Affairs yesterday warned about five types of investments that frequently promise unrealistic rates of return.

"When evaluating an investment, you should remember that risk and reward go together," said Ryan Ushijima, state commissioner of securities. "If someone is promising you high returns with no risk, be very, very skeptical, ask lots of questions and get it in writing."

The department urges caution when investing in:

>> Promissory notes, which are short term debt instruments. Investors should be wary about notes that promise high returns, often above 12 percent a month, from little-known companies.

>> "Callable" CDs, which are higher-yielding certificates of deposit that do not mature for 10 to 30 years unless the bank -- not the investor -- "calls", or redeems, them. Redeeming the CDs early results in a substantial penalty, sometimes above 25 percent of the amount invested.

>> Internet stock pitches, which are frequently used by "pump and dump" artists who inflate the price of stock in a small company by promoting it heavily in online stock chat rooms, then selling the stock when it briefly rises.

>> Prime bank schemes, which promise outrageously high rates of returns by claiming access to the "secret" investment strategies of wealthy individuals or top banks.

>> Viatical settlements, which are investments in the life insurance policies of terminally ill patients. A dying person sells his life insurance policy to a broker for a percentage of the face value; the broker, in turn, sells the policy to a pool of investors with an estimate of the life expectancy of the patient. Profits then vary depending upon how long the patient lives.

The department says it has not seen an increase in complaints about securities sales tactics since the Sept. 11 attacks, though some have been reported on the mainland.

The department also recommends that investors make sure investments meet their goals, that claims are realistic, that sellers are licensed in Hawaii and that written information about the investment is provided.

For more information about the legitimacy of an investment, call the department at 586-2740.