Volume 2 Number 40
October 3, 2005

Consumer Services HelpLine Number 800-342-2762





When a consumer complains about an investment, an investigator asks, "Did you receive a prospectus?" Then the question is, "Did you read it?"
Unfortunately, the answer to the first question is often "yes" and the answer to the second is usually "no."

Where you put your money matters. Be sure to invest with reputable, licensed companies and individuals so you can be assured that your assets are there when you need them.

Verify before you buy. In other words, make sure that the company, broker or agent is licensed to do business in Florida.  Before you sign a contract or write a check, click on these links to verify through our records that the entity is authorized and licensed to transact business in Florida or with Florida residents.

Many investors simply rely on verbal promises made by the securities seller. The fact is, a prospectus should be filled with information to help you evaluate the investment. A flimsy prospectus is a red flag.
Over the years, many securities fraud investigations have been jeopardized because the information in the prospectus is different from what the investor says he was told.
Here's an example: You invest in an unsecured promissory note paying 10 percent. The securities seller, typically unlicensed to sell securities, says the investment is safe and guaranteed.
However, if you took the time to read the prospectus you would see it contained a significant disclaimer that said something like, "this is a high risk investment with no guarantee that the business venture will succeed or that interest payments will continue." What happened to safe and guaranteed?
Most offering brochures tell you about the business backgrounds of organizers and key personnel. This section should reveal positive and negative facts.  You would want to know if the president of the company has a criminal history, experience in the type of business being proposed or if the organizers were previously involved with business ventures that failed.
If you don't read anything negative in the prospectus, you should ask tough questions. Better yet, do independent research. Here are a few tips on what to look for when reading a prospectus.
Is the investment speculative? If yes, does the investment meet your personal investment objectives? You may be willing to accept more risk for a higher than normal rate of return. Carefully read the risks section. If no risks are identified, this is a red flag.
Is the investment listed on a recognized stock exchange? Is it registered with the Securities and Exchange Commission or state regulators? Stock exchange listing rules are demanding. While being listed on an exchange is no guarantee for success, at least you know the company completed the very demanding red tape required by the securities registration process.
Here's a tough one for most people. Are the shares offered at a fair price and does the financial data make sense? You may need to get help from a financial expert to figure this one out.
Do you understand the industry and does the business plan make sense? If you don't understand "how" the company will earn money, then maybe you should reconsider your decision to invest. Remember Charles Ponzi and his investment scheme.

Ponzi paid outrageously high returns so no one would investigate the veracity of his business plan of buying and selling international postal reply coupons. After his scheme collapsed Ponzi boasted that investors were blinded by the high rates of return he promised (50 percent in 45 days, 100 percent in 90 days). His business plan made no sense, but nobody took the time to evaluate it.
There are no guarantees that even if you read and understand an investment prospectus you will make money or the business will succeed. There are no risk-free investments, only investments with varying degrees of risk. Do your homework and invest cautiously. That way, your chances of losing money will diminish.

Call our consumer helpline at 1-800-342-2762 for more information and assistance. Visit Your Money, Your Life, the website for smart financial information for Floridians.