BizNet OnLine Magazine, investment scams exploiting millennium fears

Watch out for investment scams exploiting millennium fears

Beware investment scams playing on fears that banks won't be able to handle the Year 2000 change, lawmakers and regulators warned the public Tuesday.

The House Judiciary Committee, meanwhile, heard testimony from business leaders and lawmakers warning of dire economic results if Congress does not pass legislation limiting what experts predict could be $1 trillion in lawsuits arising from the computer glitch.

As Congress grappled with the Year 2000 problem on several fronts, Rep. Jim Leach, R-Iowa, chairman of the House Banking Committee, said at another hearing that the banking industry appears well prepared but some troubling questions remain.

Leach asked, for example, why companies assessing banks' Year 2000 readiness have been less confident than banking regulators. He also noted that the inspectors general at some agencies, such as the Federal Deposit Insurance Corp., have raised questions about the thoroughness or accuracy of the agencies' Year 2000 examinations of banks.

The nation's banks, thrifts and credit unions "need to be prepared for a confidence deficit" on the part of the public, Leach said.

"As in the case of fire, if there is a panic in the banking sector, and everyone rushes to the door, someone is likely to get hurt," he said.

People should avoid panic and steer clear of the proliferating investment scams exploiting Year 2000 fears, Leach said.

Some con artists have tried to persuade people to take their money out of banks to avoid computer foulups, then turn it over to be invested with them in gold, silver, small-company stocks or other assets.

Some unscrupulous promoters are sending unsolicited e-mail messages selling investment opportunities in companies or products that are touted as fixing the Year 2000 problem, according to state securities regulators.

"There may be cases of Y2K fraud or swindle," testified Donna Tanoue, the FDIC chairwoman. "If a deal seems too good to be true, it probably is."

The nation's bankers have promised that ATM machines, credit cards, checks and banking services will function normally through the millennial date change. They have warned that withdrawing massive amounts of cash could make consumers vulnerable to being robbed.

Tanoue and other regulators appearing at Tuesday's hearing reminded consumers that bank accounts are federally insured up to $100,000 each.

Also, the Federal Reserve has ordered an additional $50 billion of new currency to be put into circulation in the event people make a run on banks and automated teller machines late in the year. By the end of the year, $200 billion in currency will be stored in government vaults, up from the $150 billion normally held in reserve. That's in addition to the $460 billion in notes circulating in the United States and abroad.

The proposal debated by the Judiciary Committee seeks to head off a flood of lawsuits by giving companies that are potential defendants up to 90 days to fix Year 2000 problems before a suit goes to court, and by promoting mediation. The legislation also would cap punitive damages, make it more difficult to file class-action suits and allow those sued to claim they are making "reasonable efforts" to remedy problems.

Year 2000 lawsuits, said Rep. Jim Moran, D-Va., one of the bill's sponsors, "pose a threat to the nation's continued economic prosperity."

Another sponsor, Rep. Tom Davis, R-Va., said such suits could dwarf the $300 billion to $400 billion now at stake in all U.S. litigation annually.

Two similar bills are pending in the Senate. All the legislation faces strong opposition from consumer groups that warn they could seriously undermine consumers' legal rights.

Assistant Attorney General Eleanor Acheson, in a statement, said the administration supports efforts to mediate cases outside the courtroom, but is concerned about rewriting laws in what would be "by far the most sweeping litigation reform measure ever enacted."

Tips from Donna Tanoue, chairwoman of the Federal Deposit Insurance Corp., on investment scams exploiting fears that banks won't be able to handle the Year 2000 date change:

Don't give your bank account numbers or other financial information to anyone unless you initiated the conversation.

Carefully check out any investment offer before you hand over money.

Report investment scams to the police and to your bank, thrift or credit union.

To prepare for the Year 2000 change, financial regulators advise consumers to:

Keep at least six months' worth of bank and brokerage statements on hand, in case a problem develops at the turn of the millennium.

Ask your broker what his or her firm is doing to remedy the problem and what procedures are in place for potential problems or disputes.

Ask for a report on Year 2000 readiness from corporations in which you own shares.

If you manage your investments and personal finances using off-the-shelf money management software, check with the vendor to make sure it is Year 2000 compliant.

Check with the company that made your computer and its operating system to be sure they are ready.

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