Ken Paxton

Investments & Securities

You have worked hard to accumulate savings for the future. As you plan how to make your money increase and work for you, make sure you don't fall for investment fraud. People who lose money to investment scams rarely recover their losses. Before you invest your life savings, you should take the time to educate yourself about securities and investments.

The Texas State Securities Board regulates the securities industry in Texas. The SSB registers all securities, securities dealers, agents, salesmen and investment advisers in the State of Texas. The SSB offers consumer education for investors on its website and accepts complaints about offers and sales of securities and about securities dealers and investment advisers.

The federal Securities and Exchange Commission (SEC) protects investors by enforcing the federal Securities Act. The SEC website, like that of the SSB, offers a wealth of information for investors and also accepts complaints.

Retirement annuities and similar investments are regulated by the Texas Department of Insurance (TDI). The sale of variable annuities, which are based on stocks, bonds or other securities, is regulated by the Securities and Exchange Commission. For more information on annuities and variable annuities, visit the TDI and SEC websites.


Investment Fraud

The common theme of investment scammers (apart from the fact that they are not likely to be registered with the SSB) is the guarantee of high return for little risk. Whether they are selling secret tricks, special funds, or hot tips about soaring stocks, they will offer a rate of return that greatly exceeds what other investments are generally earning, and they will tell you their scheme is safe.

No legitimate investment adviser or seller will guarantee results. All they can show you is past performance. An honest advisor freely admits that the past is not a predicter of the future. There is always risk. This means that it is always possible not only that your investment will fail to earn as you would like; you might even lose money.

Generally speaking, high return is associated with high risk, and investments that are relatively safe will usually yield relatively low returns. A promise of high return and low risk is a red flag.

Scammers are also likely to be in a hurry to close the deal and may urge secrecy. These factors are also red flags. Real investment opportunities are rarely that time-sensitive. Serious investors almost always take time to research their decisions. And the need for secrecy may be mainly about keeping you in the dark about the real nature of the offer.

You should be particularly cautious about investment offers that involve friends of friends, or even friends of family members, as opposed to professional, registered securities dealers.

Here in Texas, especially in times when the price of oil is high, we receive many complaints about oil and gas investments. Investors have been ripped off by phony companies that promise huge profits due to the high cost of crude oil.

Oil exploration is a very high risk investment, not for the faint of heart. Be sure to properly research a business before investing your money. The State Securities Board oversees oil and gas investments. Anyone considering an oil and gas investment should contact the Board for available information about the producer. The Board also accepts complaints about oil and gas investments.

In addition, the Texas Railroad Commission can tell you if the company that solicited the investment is registered as a producer in Texas and about the leases it has operated in the past.

Although the Railroad Commission regulates the oil and gas industry in Texas, it refers complaints regarding payment of royalties to the National Association of Royalty Owners (NARO). Contact that organization with complaints of this nature.

Finally, because of the nature of annuities, they are not appropriate for just any investor. In particular, they may be inappropriate for seniors because of the lengthy horizon before they begin to pay off. Sale of annuities to seniors may be unethical. Consult the SSB website for more information.


Enforcement Actions

The State Securities Board of Texas is authorized by law to investigate complaints regarding the sale of securities, notes, limited partnership interests, commercial paper, oil and gas investments, and investment contracts. The Board is responsible for detecting and preventing violations of the Texas Securities Act, such as illegal sale of unregistered or non-exempt securities, sale of securities by unregistered dealers, and fraud committed in connection with the sale of securities and investments.

When the Board refers a case to the Office of the Attorney General, this office can then take immediate and appropriate civil enforcement action. If a suspected violation is criminal in nature, the Board may refer the case to a local District Attorney or a U.S. Attorney for prosecution.

Always remember, though: enforcement is not likely to bring your money back. It is more likely to prevent future additional violations and losses by victims of investment fraud. Take time to educate yourself before you invest, and don't be a victim of investment fraud.