Be wary of investment seminar promises
By Deborah Adamson
CBS MarketWatch
LOS ANGELES — Like many of their friends, Jerry and Linda Chessler found themselves at a crossroads in life, sandwiched between helping their kids financially and caring for elderly parents.
The bear market decimated the Sarasota, Fla., retirees' savings — invested mainly in mutual funds — and sent them searching for ways to boost their cash flow.
"We deserve to have our golden years right now and we don't have them," said Linda Chessler, 62. "We've earned good salaries, we're college graduates and we've worked hard all our lives. We don't have enough money, but not because we didn't save."
So when Jerry Chessler got an advertisement in the mail for a stock-trading seminar, the retired business owner was intrigued.
They went to an initial sales meeting and learned of the trading system and software. Two weeks later, they took a free one-day class. They and another couple split the $3,000 cost for the software, which comes with a 30-day money-back pledge.
Investment seminars can provide much-needed education to novice investors, though often at a considerable price. The problem is weeding out scam artists who lure in beginners with "easy" strategies and "guaranteed" high returns.
In December, Wade Cook agreed to settle Federal Trade Commission charges that he and his companies violated a court order to stop making unsubstantiated earnings claims at his seminars. He and his companies have to pay back investors and disclose his investment system's actual rate of return on stocks.
"Their own investments were losing money," said Bob Schroeder, assistant regional director of the FTC in Seattle.
Last summer, Tim Cho Investment Corp. settled with the FTC after being charged with filing "false and deceptive advertising claims" on its day trading seminar. The company, the seventh such firm to be charged since early 2001, did not admit or deny wrongdoing.
Cook charged $3,000 to $5,000 for two- and three-day seminars and advertised that investors could make a lot of money — at least 20 percent a month. Tim Cho claimed an 18 percent per trade return and a guaranteed 1,000 percent return in trading S&P futures in a year.
John T. Reed, a real estate author and investment newsletter writer, has investigated a number of property investment gurus and posted his findings and opinions on his Web site www.johntreed.com. Many of them have infomercials that promise "no money down" to buy real estate.
"They are preying on the weakest people financially," he said. "You see a disproportionate number of minorities and immigrants."
Here are some warning signs of a possible investment scam, according to Schroeder and Reed:
• Claims of high profits at low risk.
• Results are guaranteed.
• Flaunting of a luxurious lifestyle, with rented limos and jets.
• Very little or no warnings of potential losses.
• Too-good-to-be-true testimonials.
• Focus on targeting beginners.
• Pressure to sign up now to lock in a discount.
In addition, investors should be wary of a strategy that claims to be unique and can make more money than all the rest, Schroeder said.
During the seminar, ask to see actual returns of the trading strategy. Make sure it's not back-tested — testing the strategy over what's already happened, said Ken Abbe, FTC staff attorney at the Western Regional Office in Los Angeles, who handled the Tim Cho case.
Finally, realize that you have to work hard for wealth.
"It's appalling how much people want and how little they are willing to do for it," Reed said. "Investment-seminar scamsters prey on that — they promise you can get (wealthy) easily."
Research the seminar on the Internet, making sure to hit the chat rooms as well to get feedback from folks who've taken it, said the FTC's Schroeder. Check out the company on the FTC Web site www.ftc.gov to see if the agency has filed any lawsuits against the investment firm. Also check with your state's securities office and the Better Business Bureau. If the company is public, look up its Securities and Exchange Commission filings at www.sec.gov.
