Pa. consumer educator outlines common investment frauds, warns investors to verify offers

Katrina Boyer, investor education coordinator at the Pennsylvania Department of Banking and Securities, used a recorded webinar to outline common investment frauds and urge Pennsylvanians to verify offers and report suspected schemes.

Boyer said the session covered several recurring scams — affinity fraud, Ponzi schemes, free-lunch seminars, pump-and-dump schemes, promissory-note fraud and impersonator scams — and reviewed red flags investors should watch for and federal and state resources to check investment firms and professionals.

Boyer opened by noting "investment frauds are incredibly prolific once you've learned about what they are," and said fraudsters often exploit social ties, high-pressure sales tactics and spoofed contact information to trick people into sending money.

Why it matters: investment fraud can target community groups and vulnerable populations and produce large losses. Boyer cited examples ranging from the nationally publicized Bernie Madoff Ponzi scheme to local cases in Pennsylvania to illustrate how different scams operate and whom they target.

Most common schemes described

Affinity fraud: Boyer described how fraudsters embed themselves in churches, civic clubs or social groups to build trust and recruit victims. She used the Jan Lewandowski case — the subject of the Netflix film "The Polka King" — as an example of affinity fraud in Pennsylvania, saying Lewandowski "stole $5,000,000 from fans and investors in Pennsylvania, Delaware, and New Jersey".

Ponzi schemes: Boyer summarized the classic Ponzi model, where returns to earlier investors are paid from funds provided by new investors. She referenced Charles Ponzi and Bernie Madoff, noting Madoff was arrested in 2008 and "pleaded guilty to 11 felony charges" and was sentenced in 2009 to 150 years in prison; Boyer added Madoff died in 2021.

Free-lunch seminars: Boyer warned that promotional "free lunch" events can be used to recruit attendees for high-pressure sales pitches later. She gave an example of an elderly attendee who was sold an annuity that would not begin payments for 20 years — an arrangement Boyer said made no sense for someone in her eighties.

Pump-and-dump schemes: Boyer described pump-and-dump frauds that use social media, mass calls or false reports to inflate the price of a small-cap stock and then sell into the bubble. She said these schemes often involve companies with little public history and unsolicited pitches.

Promissory-note scams: Boyer explained promissory notes are written promises to repay and can be legitimate, but she warned scammers offer short-term, high-rate IOUs to noninstitutional investors. She described promissory notes as securities that should be registered with the Securities and Exchange Commission and contrasted legitimate offerings for "sophisticated or institutional investors" with offers aimed at ordinary consumers.

Trickling Springs Creamery example: Boyer said executives at Trickling Springs Creamery sold promissory notes to investors between 2015 and February 2017. She related that some research puts the total at about $7.5 million while the Securities and Exchange Commission's report cited an amount "closer to $70,000,000," and said the company targeted Amish and Mennonite communities before filing for bankruptcy when it could not repay investors.

Impersonator frauds and verification steps: Boyer described impersonator scams in which criminals copy real firms' websites, logos and personnel names and spoof phone numbers. She advised investors to contact firms using phone numbers or web addresses found on authoritative sites rather than contact information supplied by the caller.

Red flags and practical checks

Boyer listed common warning signs: guarantees of high returns, pressure to act immediately, requests to pay via gift cards or cryptocurrency ATMs, instructions to write checks payable to individuals instead of registered firms, and unsolicited tips via email, social media or voicemail. "If it sounds too good to be true, it probably is," she said.

She recommended these verification steps: search the SEC's EDGAR filings, check broker and adviser registration and records at FINRA BrokerCheck, and use investor.gov for guidance. Boyer emphasized that sellers of securities must be licensed and that all securities carry risk and are not insured.

How to report suspected fraud

Boyer urged consumers to report suspected fraud to the Pennsylvania Department of Banking and Securities through its consumer services portal or by calling the department's hotline, and to file complaints with the SEC when appropriate. She said the department's consumer services number, 800-PA-BANKS, and its online services are free and available during regular business hours.

Boyer concluded the session by reminding listeners that the department receives many consumer reports and that those reports often prompt investigations. She closed by noting the recorded webinar series will continue and invited attendees to the next session.