Phone solicitors with 'big money' deals are looking for the unwary
Hard times and confusion tend to bring out the unscrupulous huckster offering investment schemes that are either illegal, extremely speculative, or costly. The central thread stringing through nearly all of the fringe ideas for making "big money" is the telephone. Generally, a cold-call solicitation to invest your cash in any scheme should raise your level of skepticism immediately. Some of the current batch of spurious ideas for separating you from your cash are:
* Deferred delivery contracts where you buy the right to take delivery on fuel oil, gasoline, or some other commodity in the future are illegal.
Deferred delivery contracts are really options as distinct from a futures contract. The gimmick is a payment up front in cash for the "right" to buy something in the future -- not a contract to take delivery at a specific price. Deferred delivery of fuel oil sounds attractive -- even a hedge against the rising cost of home heating oil. But the option will not likely be backed by oil supplies and will not be completed. If your speculative interests run to the future, stick with stock options and futures contracts -- both legal -- and trade with a broker you know who will be there tomorrow and not gone with the wind.
* Oil-lease lotteries appear to offer sensational opportunities for "hitting it big." Government lotteries themselves are legitimate and are conducted by the Bureau of Land Management, a part of the US Department of Interior. A filing fee is $10, plus you'll be charged an annual rental of $1 an acre if you win. Some parcels are 2,000 to 4,000 acres. Only if an oil company or a driller offers to lease your land after winning will the deal turn a profit -- unless you are prepared to drill your own well. Land offered for lease may already have been scouted and found to be not worth the risk of drilling. Or lands may have been previously leased and leases allowed to lapse. A caller may be offering to sell you geological reports or other "inside" information on lands. The service will not likely be useful and is the caller's way of collecting cash. So, save your filing fees and avoid service costs.
* Interest in energy has revived an older scam -- selling partnerships in oil drilling ventures with no land to drill on. The pitch hits home from two angles -- the known increase in oil prices with the prospect of big profits to come and the opportunity to shelter earnings from income taxes. Established brokers and dealers with offices near you plus a track record going back years offer similar opportunities. So -- why send your money off blindly to a quick-talking telephone solicitor for a deal that could be totally illegal. An upfront loss in an oil-drilling venture is to be expected and is part of the tax shelter concept. But, the payback downstream and the depletion allowance should provide an opportunity for a substantial yield to compensate you for the risk and the delay --both good reasons to know and respect the organization you are dealing with.
* Tax shelters based on schemes other than real estate carry extra risks: (1) The Internal Revenue Service, backed by legislation and court actions, no longer permits deductions for investments that are not "at risk." Unless your cash or credit is actually on the line, you could be billed for penalties and back interest for unallowed deductions. (2) Multiple deductions are being attacked by the IRS -- where you are supposedly permitted to take double, triple, or quadruple deductions based on amounts invested. Claims for multiple deductions are apparently being flagged for in-depth audits. Thus, you could be subject to two risks -- loss on the investment plus the hassle of an IRS audit.
Numerous other shady operations and outright scams are around with appeals promising double, triple, and higher profits -- usually offered by telephone. One way to hang on to your cash is to quickly hang up the phon e.