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Regulatory group warns of gold scams

August 24, 2011 | 12:13 pm

Gold1

First came the boom. Then came the scams. Now comes the warning.

Individuals who have become enamored of gold amid the dramatic rise in the price of the precious metal should be on the lookout for investment traps hatched by con artists, according a warning issued Wednesday by a financial-industry regulatory group.

As the price of gold pushed to a series of record highs this year, various scams have been hatched to lure unsophisticated small investors, the Financial Industry Regulatory Authority said in a warning posted on its website.

“Even a cursory Internet search will pull up numerous websites, blog posts, investment newsletters and social media posts (including YouTube videos and Tweets) devoted to the topic of investing in gold,” the warning says. “But some of the stocks and opportunities being promoted have precious little value, and others are outright frauds.”

Authorities already have cracked down on a number of scams.

The Securities and Exchange Commission brought action against a Florida company that claimed a mining project in Ecuador had turned up gold reserves worth more than $1 billion.

In another case, the agency alleged that a Ponzi scheme bilked 3,000 investors out of $300 million. The six people charged with running the scam used free-lunch seminars to entice victims to invest retirement savings and home equity, according to the SEC.

Investors should be dubious of claims that a company’s stock price is certain to rise simply because gold prices are going up, according to the FINRA warning.

People also should be wary of companies that alter their names to associate them with gold, according to FINRA. For example, a company that claimed to do gold mining was formerly in the golfing business.

Perhaps the best disincentive could be a fall in the price of gold.

After surging dramatically over the last two months, gold fell sharply on Wednesday. Gold suffered the biggest fall in more than three years, sinking $103.60, or 5.6%, to $1,757.70.

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-- Walter Hamilton

Photo: Gold bullion at a smelting facility in India. Credit: Manjunath Kiran / EPA

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