Avoiding investment and financial scams.

• Author: Wechsler, Marysue J.

WHILE MOST investment opportunities are legitimate, some may be outright scams. You can reduce your chances of being victimized by getting as much information up front about your prospective financial advisor. Selecting a qualified, professional financial planner can reduce your vulnerability to questionable activities. It is important to check his or her credentials, experience, education, and professional affiliations before entering into a financial relationship.

The golden rule for avoiding investment scams long has been, "If it's too good to be true, it probably is." Yet, Americans still are stung for millions of dollars every year by con artists offering investment deals that are, literally, too good to be true. The following are several common investment scams, updated for the 1990s, and what you can do to avoid them:

Penny stocks are inexpensive stocks issued for new business ventures. At their best, legitimate penny stocks are extremely speculative; at their worst, their prices easily are manipulated by the company and broker-dealers, leaving unsuspecting investors holding worthless paper.

Precious metals. Typically, investors are persuaded to invest in gold, silver, or platinum with promises of skyrocketing prices.

Real estate. Fraudulent real estate tax shelters, multiple sales of the same worthless land, and developments whose value has been inflated artificially are common real estate scams. Overselling or misrepresenting time-share units are other popular real estate ripoffs.

Ponzis. Among the oldest of investment frauds, Ponzis work on the principle of hundreds of Peters paying a few Pauls. Early investors (in commodities, real estate, high-tech, gold mines, etc. are paid off or rewarded with money coming in from the succeeding waves of investors, luring still more investors in, until the entire house of cards collapses. The promoters walk away rich.

Oil and gas. While a legitimate investment area, beware of con artists who use false-front drilling equipment set on worthless land or sell investments in a huge new "discovery" of oil in an area where there are no known petroleum deposits. These are just two of the many scams in this well-worked "get-rich-quick" field.

Check it out carefully

How do you avoid these and many other scams? First, never invest over the telephone. Avoid "buy-now" sales pitches. Demand a detailed prospectus and other financial offering materials. Check out any company with your state securities office...