Investment scams look legit. But ads in newspapers aren't checked thoroughly

``Buy fresh frozen silver,'' read the ad. It didn't promise outrageous profits - just a convenient two-year layaway plan and a toll-free telephone number for ``the facts'' about investing in silver. This seemingly innocuous ad appeared in The Christian Science Monitor in 1984.

William H. of St. Louis was intrigued. He sent $900 to World Equity Mint of Anaheim, Calif., to cover ``fees'' and a down payment on $3,600 worth of silver.

Last month, World Equity Mint was one of three southern California precious metals dealers snared in a one-day raid by fraud investigators. World Equity Mint allegedly bilked more than 1,500 investors out of up to $15 million in a nationwide scam.

But ``we only found about $60,000 in a checking account,'' says Larry Lambert of the Orange County District Attorney's office. ``I've found nothing in their records to indicate any metals purchases in the last two years, with the exception of $500 in silver coins and three gold coins - from a company that represents itself as a mint.''

Mr. H.'s case is not isolated. Both investors and the media are being conned regularly by fraudulent financial advertising, say state and federal regulators.

``Over the last four years, one of our highest priority programs has been investment fraud,'' says Mike McCarey, associate director of the Federal Trade Commission's Bureau of Consumer Protection. The FTC investigates false and deceptive advertising. Since 1982, 15 cases have been brought against advertisers that have swindled more than $600 million from investors, says the agency.

The FTC, for example, has a case pending against Security Rare Coin & Bullion in Minneapolis. The coin dealer placed a full-page color ad in USA Today where, the FTC alleges, it misrepresented the investment risks as well as the value and grade of the coins it was selling.

Utilizing a respected publication for illegal purposes is a common ploy. Fraudulent ads have also appeared in Barron's and the Wall Street Journal. Why would newspapers accept such ads?

Most newspapers have advertising acceptability standards. Certain ads are rejected or revised to meet these standards. Financial advertisements, in particular, are carefully scrutinized. But, generally, newspapers can only judge the ad, not the company itself.

``Most newspapers don't have the resources to do more than a cursory check of an ad before it's placed,'' says James Ralph of the American Newspaper Publishers Association Credit Bureau. ``And I know darn well some newspapers place ads without ever looking at them. They know they'll get paid even if the reader is getting gypped.''

Checking into a company or individual's background is not an easy task. ``Even if a paper did do a due diligence check on World Equity Mint, they wouldn't have found anything negative,'' says Kacy McClelland, a US postal inspector with the fraud task force in Orange County. ``It took us three months to put the pieces together. That's what makes it a successful scam.''

Mr. H. of St. Louis checked the Better Business Bureau last November when World Equity Mint sent him a bill. ``The BBB told me they were OK,'' he says.

In a Ponzi-type scheme where old investors are paid with new investors' money, complaints often don't arise until the scam unravels. And a fraudulent firm may be especially conscientious about bill paying. World Equity Mint, for example, managed to get listed by Dun & Bradstreet's Credit Rating Service.

``They paid their bills,'' says Mr. Lambert. ``And they submitted documents to Dun & Bradstreet that were full of misrepresentations.''

The ANPA credit rating service has had World Equity Mint in its data bank since 1984. Nearly a month after the operation was shut down, Mr. Ralph reports, ``I have no bad news on them at all.''

The ANPA is working with the Commodities Futures Trading Commission (CFTC) to sensitize newspapers to this problem. The ANPA plans to make available to its members the CFTC ``Proceedings Bulletin'' - a list of people and firms which have violated commodities regulations. The publication is also available directly from the CFTC for $36 annually. The Securities and Exchange Commission has a similar document.

``We would like to hear from publishers'' about financial ad complaints received from readers, says Mr. McCarey of the FTC.

Interest by advertising directors in tighter acceptability standards has risen in the last two years, says Gerald Smith, legal counsel to the International Newspaper Advertising and Marketing Executives association.

``Many major newspapers have adopted extremely formal review procedures for ads,'' he says. But newspapers tend to focus on the larger display ads.

``Classified ads are more prone to problems,'' notes Mr. Smith. Increasingly, classifieds are taken over the phone by clerks who input them into a typsetting computer. They aren't reviewed until after publication.

Fraudulent ads aren't exclusive to print media. Advertising on cable television financial programs, in particular, concerns regulators. With enough staff, says one investigator, ``I could slap 10 cease-and-desist orders a week on these guys.''

What can investors do to protect themselves?

``Don't buy any investment over the phone,'' says Mr. Lambert at the Orange County District Attorney's office. ``If you're really interested in buying gold, buy it from a known person, and pick it, and keep it yourself.

``If you want to buy metals' futures, contact the National Futures Association [1-800-621-3570] or the CFTC [202-254-6387]. If the company is with the NFA and registered with the CFTC, chances are you're dealing with a legitimate company. Then, you probably just have the risk of investing in metals.''