Volume 2 Number 15
April 11, 2005







Florida’s Chief Financial Officer Tom Gallagher released a list of Florida’s top ten scams used to cheat investors out of hundreds of millions of dollars.  Gallagher said that while his department is always on the lookout for crooks peddling bogus investments, the best defense against these characters often is a vigilant citizenry.

 “The calls we get from Floridians to check out an investment or the person selling it often lead us to unregistered investments and unlicensed salesman and brokers,” said Gallagher.  “When the public calls us to verify a deal, they not only protect themselves, they might also protect others by tipping off our investigators.”

The top 10 threats to Florida investors for 2005 are:

1. Ponzi Schemes:  The premise is simple: pay early investors with money raised from later investors. The only people who make money are the promoters who set the Ponzi in motion. On July 30, 2004, Charles William Cox, of Ft. Myers, and Charles D. Gregory Jr., of Pensacola, were sentenced for running the schemes "European Marketing Group", "Mammoth Capital" and "Skyward Enterprises."  Investor's money was laundered through various U.S. and offshore businesses and bank accounts and then misappropriated by the defendants. Cox was sentenced to 48 months and Gregory was sentenced to 23 months in prison.  They agreed to pay over $2.7 million in restitution. 

2. Unlicensed Individuals Selling Securities: Anyone selling securities without a valid securities license should be a red alert for investors.  Call 1-800-342-2762 or go to www.MyFloridaCFO.com to Verify Before You Buy.

3. Unregistered Investment Products: Con artists bypass stringent state registration requirements to pitch viatical settlements, pay telephone and ATM leasing contracts, and other investment contracts with the promise of “limited or no risk” and high returns.  James Dent, of Plantation, FL, was sentenced in April of 2004 for the sale of unregistered securities.  Dent is serving eight years probation and was ordered to pay $290,000 in restitution.  

4. Promissory Notes:  Empty promises can leave these notes worth less than the paper they are printed on.  On February 23, 2004, Alfred Michael Jaillette, of Altamonte Springs, President of World Vision Entertainment, was sentenced to 51 months incarceration and ordered to pay restitution of $18,973,279 for the sale of guaranteed promissory notes which were backed by a shell company with no assets.   

5. Senior Investment Fraud:  Because of their access to a lifetime of savings, seniors continue to face investment fraud by con artists peddling unsecured promissory notes and other investments that are either fraudulent or unsuitable for them. On August 12, 2004, Philip Mehl, age 65, of Stuart, was sentenced to 20 years and ordered to pay restitution for running workshops and advertisements that offered 10 percent returns on investments that were guaranteed against loss. The scam sold over sold over $20 million of these bogus securities.             

Last year lawmakers passed the Senior Annuity Suitability law which was proposed by Gallagher.  It requires annuities to be compatible with the needs of the person purchasing it. 

6. High-Yield Investment Schemes: Con artists lure investors with promises of triple-digit returns through access to “risk-free guaranteed high-yield instruments” or something equally deceptive.

7. Internet Fraud: Stock promoters are using online “boiler rooms,” instant messaging, and fake websites to lure investors into “pump-and-dump” stock schemes. 

8.  Affinity Fraud: Con artists are increasingly targeting religious, ethnic, cultural, and professional groups. The Miami Herald recently reported on a Miami Beach couple who was told about an investment by a neighbor who attended the same church.  Their $25,000 was stolen along with $180 million that a bogus company scammed through churches across Florida. 

9.  Variable Annuity Sales Practices: Senior investors should beware of the high surrender fees and steep sales commissions agents often earn when they move investors into variable annuities.

10. Viatical Settlement Agreements: Many Floridians have been the victims of viatical investment companies that promise very high returns with very low risk.  Gallagher has been fighting to have lawmakers pass a bill to regulate viatical investments as securities, but many in the industry are trying to block this oversight. 

The legislation, House Bill 1437 by Rep. Dudley Goodlette and Senate Bill 2412 by Sen. Rudy Garcia, would require investments in viatical settlements to be regulated as “securities.” For investors, this would mean access to company information, any promises made to investors would have to be documented and approved by state regulators, and a determination of the investment’s suitability would have to be considered, including the purchaser’s financial and tax status, and the purchaser’s investment objectives.  The legislation would also require the broker and sales agent selling viaticals to be licensed.

Viatical providers, like Mutual Benefits and Lifetime Capital, buy life insurance policies for less than the face value and resell them to investors who seek to make money upon the insured’s death. By selling a policy for a percentage of its face value, the insured can get cash now for medical, living or other expenses. The tradeoff is giving up a bigger payoff at death for one’s beneficiaries.

Before making any investment, Gallagher urged investors to ask the following questions:

  • Are the seller and investment properly licensed and registered? 
  • Has the seller given you written information that fully explains the investment?
  • Are claims made for the investment realistic?
  • Does the investment meet your personal investment goals?

Gallagher also urged investors to contact the Department of Financial Services with any questions about an investment product, broker or adviser before making an investment. Please Verify Before You Buy.

For more information call the Department of Financial Services at 1-800-342-2762 or go to www.MyFloridaCFO.com. Information is also available at the North American Securities Administrators Association Fraud Center at www.nasaa.org.  

Gadsden, Florida's fifth county, was formed in 1823. It once ran from Georgia to the Gulf of Mexico, from the Suwannee River to the Apalachicola River. Quincy, the county seat, was incorporated in 1828. The courthouse, above, was built in 1912.