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North American Securities Administrators Association Warn of Top Threats to Investors in 2016

By Robert Linkin | January 19, 2016

Complex Litigation, Securities Litigation

The North American Securities Administrators Association (NASAA) has released its list of the top threats to investors in 2016.  NASAA urged investors to be particularly careful when approached with unsolicited investments, especially those involving promissory notes, oil and gas deals and real estate investment opportunities, including non-traded real estate investment trusts.

“Investing is serious business,” said Judith Shaw, NASAA President and Maine Securities Administrator. “Education and information are an investor’s best defense against investment fraud.”

The top threats to investors were determined by surveying state securities regulators to identify the five most problematic products, practices or schemes. The following were cited most often by state securities regulators.

  1. Unregistered products/unlicensed salesmen: The offer of securities by an individual without a valid securities license should be a red alert for investors. Con artists also try to bypass stringent state registration requirements to pitch unregistered investments with a promise of “limited or no risk” and high returns.
  2. Promissory Notes: In an environment of low interest rates, the promise of high-interest-bearing promissory notes may be tempting to investors, especially seniors and others living on a fixed income. Promissory notes generally are used by companies to raise capital. Legitimate promissory notes are marketed almost exclusively to sophisticated or corporate investors with the resources to research thoroughly the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal. Most promissory notes must be registered as securities with the SEC and the states in which they are sold. Average investors should be cautious about offers of promissory notes with a duration of nine months or less, which in some circumstances do not require registration. Short-term notes that appear to be exempt from securities registration have been the source of most – but not all – of the fraudulent activity involving promissory notes identified by regulators.
  3. Oil/Gas Investments: Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices. Fraudulent oil and gas deals frequently are structured with the limited partnership (or other legal entity) in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states. As a result, there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Such a structure also makes it difficult for authorities and victims to identify and expose the fraud.
  4. Real Estate-related Investments: Troublesome real estate-related investments identified by securities regulators included non-traded real estate investment trusts (REITs), timeshare resales, and brokered mortgage notes. These types of products often carry higher risk. For example, non-traded REITs are sold directly to investors and are not traded on exchanges (as are conventional REITs). Non-traded REITS can be risky and have limited liquidity, which may make them unsuitable for certain investors.
  5. Ponzi Schemes: The premise is simple: pay early investors with money raised from later investors. The only people certain to make money are the promoters who set the Ponzi in motion.

While Texas based investors should be mindful of all the items on NASAA’S annual list, they should be particularly careful with respect to Promissory Notes and Oil and Gas Investments. Promissory note schemes and investments have been a particular issue in Texas for the past several years and are generally not appropriate unless you are a sophisticated investor with a high risk tolerance. The Oil and Gas industry –  for obvious reasons – is particularly concentrated in Texas, and as a result, investors in this state find themselves victims of oil and gas schemes each year. The precipitous drop in oil and gas prices over the past 18 months and the related drop in exploration activity means that many investors, even those who invested in legitimate oil and gas investments, could see an enormous losses in the coming year.

Rob Linkin is a partner at Duggins Wren Mann & Romero, LLP, a full-service law firm located in Austin, Texas. Rob represents investors and victims of investment fraud nationwide. If you believe you have suffered losses as a result of the improper sale of an  investment in promissory notes or oil and gas investments by your broker,  or believe you are the victim of any other form of broker misconduct, please contact Rob Linkin at (512) 744-9300 or via email at


Duggins Wren Mann & Romero, LLP, is located in Austin, Texas. If you would like to learn more about our Firm, our professionals, or our ability to serve you, please contact us.

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