Top 7 Warning Signs of Investment Fraud
A basic understanding of how fraudster artists work can assist you to avoid fraud and protect your money. Understanding how to invest can help you reach your financial goals. In this article, we post some of the ways to assist you to avoid being scammed.
Research before you invest
Savvy investors know that it is essential to do their research before investing. Research should go beyond unsolicited emails, press releases, and forum postings.
Take the time to understand the company’s services or products. Educate yourself on the market. Find out as much info as you can about the company, its reputation, and history. You might also want to check the SEC’s EDGAR filing system to find its financial statements.
Be cautious of unsolicited offers, and always ask questions before you invest. Scammers count on their victims, not investigating before investing.
Doing research and asking questions will assist you in protecting yourself from scams. Do more than just ask for more references and information. The SEC offers information on which questions to ask, such as:
- What are the total fees to maintain, buy, and sell the investment?
- Is the investment product registered with the SEC or state securities agency?
- What can cause the investment to reduce or increase in value?
- How will this investment make money?
Fraudsters will not be able to offer legitimate answers to these questions.
Know the salesperson
Take time to check out the person touting the investment before you invest- even though you already know the person socially. Always figure out if the securities salespeople who contact you are licensed to sell securities in your state and if they or their firms have had run-ins with other investors or regulators. You can look into the disciplinary history of advisers and brokers for free using FINRA and SEC online databases. Your state securities might have extra additional information.
Protect yourself online
Social and online marketing sites provide a wealth of opportunity for scammers. For ideas on how to protect yourself online, check to Protect Your Social Media Accounts.
Be wary of unsolicited offers
Be particularly careful if you receive an unsolicited pitch from investing in a company, or check it praised online. If you can not find current financial information about it from independent sources, it can be a scam. Be wary if someone recommends off-shore or foreign investments. If something goes wrong, finding out what happened, and locating money sent abroad is challenging.
Get a second opinion
Be skeptical of unsolicited investment opportunities- over online, phone, and or from acquaintances. Before you invest, get a second opinion from a registered, qualified attorney, or an account.
Know what to look for
Make yourself knowledgeable about various kinds of fraud and red flags that might signal investment fraud.
Verify if the investment is registered
Ponzi schemes usually involve unregistered investments, reports the Securities and Exchange Commission. Begin by asking the person offering the investment, if the investment is not registered, ask them why ( not all investments must be registered). If you are informed, it is verified by following the advice FINRA offers for checking the Securities.
Understand that investment
Never put money into an investment you do not fully understand. There are various online resources to help you learn how to invest and assess opportunities for risk and potential gain. Do not write a check to or open an account with anybody who will not fully answer your questions or who attempts to discourage questions by saving the investment is using proprietary, secret, or too sophisticated for laymen strategies.
Get it in writing
Be wary of any investment opportunity that is not in writing. Usually, fraudsters avoid putting things in writing; however, legitimate investments are often in writing. Avoid an investment if you are informed they do not have time to reduce to writing the particulars about the investment. Moreover, you should be suspicious if you are told to keep the investment opportunity confidential.
Do have an exit strategy
According to FINRA, you should rehearse some stock lines to cut short a caller’s high-pressure pitch, like, I am sorry, I am not interested. Thank You.
Common persuasion tactics and red flags for investment fraud
How do financially intelligent people who are successful fall prey to investment fraud? Researchers have discovered that investment fraudsters hit their targets with an array of persuasion techniques that are crafted to the victim’s psychological profile. Below are red flags to look for:
There is nothing such guaranteed returns. All investments come with some level of risk, and the degree of risk is portrayed in the rate of profit you can expect to see. Typically, safe investments come with a lower return.
A high return is usually a sign of high risk or a potential total loss. Typically scammers try to convince investors that the high returns are assured. The aim is to get you thinking about how your life will change after you are rich. Do not fall for it. The goal is to get you thinking about how your life will change once you’re rich. Don’t fall for it.
If it sounds too good to true, it possibly is fraud
When something sounds too good to be true, it often is. Compare the promised yields with the current returns on well-known stock indexes. Investment chances that claim to provide substantially high returns can be very risky.
The high risk might mean that you lose your entire investment. Claims of investments being a breakout stock pick or having a huge upside and almost no risk indicate outright fraud or extreme risk.
Beware of the halo effect
Investors can be bewildered by a halo effect when a fraudster comes across as trustworthy and likable. Credibility can be faked. Check out the real qualifications.
Usually, fraudsters try to lure investors through free investment seminars, recognizing if they do a small favor for you, like offering a free lunch, you will do a big favor for them and invest in their investment. There is no good reason to make a fast decision on an investment. If you attend a free lunch, take the material home, and research both the investment and the person selling it before you invest. Make sure the product is ideal for you and understand what you are purchasing and all the linked fees.
The everyone is purchasing it line
Be wary of pitches that stress how everybody is investing, and you should, too. If the pitch’s main premise is to sell you on how everyone else is investing in the product, take that as a red flag and run the other way.
Think if you are genuinely interested in the product and carry out research. Do not allow the fear of missing out; let you fall victim to a scam.
The pressure to send money immediately
Anytime anybody pressures you to send money instantly, you should take that as a serious red flag. It is an even more significant concern when an investment is engaged.
Scammers will try to convince you that this is a one-time lifetime opportunity and that you have to act now. Resist the pressure of giving money to someone before you investigate the product.
Stay away from emails, robocalls, and late-night TV ads
Legitimate companies do not reach people this way. Nonetheless, scammers can be very persuasive. However, stand your ground. Do not budge. When it comes to seniors, crooks regard them as more trusting and less likely to say no. The reality is that older people are more often targeted since the supposition is that they have more assets to tap into- also known as stealing. Do not allow these buggers to woo you. Hang up, change the TV channel, or hit delete.
If you have taken every precaution and still feel like you need help before making an investment decision, consult an advisor, accountant, or financial planner. Your hard-earned money is worth all the time in the world.
What should you do if you have fallen victim of investment fraud?
If you have fallen victim to investment fraud, start by reporting the incident and getting in touch with a lawyer specializing in investment fraud. When you trust a financial advisor or stockbroker with your investments, you are entrusting that advisor with your future financial security. Note that when that trust is broken and the broker commits fraud, engages in unethical or illegal conduct, or mismanages the investments, you have to consult an experienced investment fraud attorney.
A lawyer will help you seek compensation for your losses and take you through the process of reporting the scam. Reporting the fraud will help prevent others from falling for the same scheme and losing their hard-earned money.