Many people contact our law firm after they have been victimized by investment fraud. Often, they blame themselves for trusting the fraudster or believing the sales pitch. The truth is that just about anyone, no matter how smart or educated they are, can fall prey to investment fraud. There are certain steps, however, that you can take to protect yourself before making an investment.
Verify That The Investment Is Registered
Most investment opportunities or products also need to be registered. You can go to your particular state securities regulator’s website to see if your investment and the broker selling it are registered in the state where you live.
The website for NASAA, the North American Securities Administrators Association, has an interactive map where you can look up the contact information for your state’s securities regulators. This organization has also published a list of signs of fraud which you should look out for. Below are a few of those, as well as some additional red flags to consider when making any investment.
Beware of Promises of Guarantees or Quick Profits
Experienced con artists know what appeals to people. If it sounds too good to be true, it most likely is. The higher the return, the higher the risk. Other than a few government backed securities such as CDs and money market accounts, there is no such thing as a “no risk” investment. In fact, even when an investment is sold based upon a “guarantee,” that guarantee is only as good as the company behind the guarantee. A good example of this is Lehman Brothers Principal Protected Notes. Many folks bought these notes thinking they were fully protected by the guarantee that their principal investment would be returned. In fact, however, when the over 150-year old Lehman Brothers filed for bankruptcy in 2008, that guarantee vanished. As the SEC has warned, “any guarantee that your principal will be protected—whether in whole or in part—is only as good as the financial strength of the company that makes that promise.”
Be Suspicious About High-Pressure Sales Tactics
You should be particularly suspicious of individuals who tell you that you must act now or that this is a limited time offer which will end very soon. This is a trick used by fraudsters to get you to invest quickly without you doing any investigating or weighing the risks. In a legitimate investment, you should always have the opportunity to read the materials, understand your investment and make an informed decision. If it’s a real deal, it’ll be there tomorrow. This type of sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Don’t feel pressured to make a quick decision. Take your time and talk it over with an objective third party, someone who can check the facts regarding the investment opportunity.
Beware Of Unsolicited Offers
Have you ever received a call out of the blue offering an amazing investment opportunity from someone you don’t know? This very well could be a warning sign of a scam. Always treat an unsolicited phone call with skepticism.
Ask to See a Prospectus or Offering Circular
If someone is selling you an investment and they tell you that a prospectus or offering circular isn’t necessary, this is a red flag that you should hang up or walk the other way. A good rule of thumb is to never invest in anything until you have written material about the company and the investment and have taken the time to check it out. If that material is full of typos or misspellings, this is also a clue that you should reject the sales pitch. Shoddy fraudsters create shoddy sales materials.
Talk to Someone you Trust
If you are interested in making a new investment, take the time to talk with a third party, who is someone you trust. It’s a good idea to speak to your regular stockbroker, your attorney, your accountant, or any other person who is familiar with investments.
Watch Out For Online Scams
Especially during COVID-19, it seems that many scams are being promoted online and via social media. Treat any “hot” investment opportunity you see advertised online with skepticism. Do your research and don’t simply just send someone your money because they have an impressive website.
Beware if the Investment has Guaranteed High Returns
There’s no such thing – the truth is that the higher the returns, the higher the risk of the investment. This type of sales pitch is often aimed at people who don’t want to risk their money but need a higher return to meet their living expenses. Such investment fraud is often aimed at people who are on a fixed income or are near retirement and are worried about not having a large enough nest egg to live on. Even with legitimate investments, understand the risk level you are taking and invest only what you are willing and can afford to lose. If someone is filling out paperwork for you to invest and you have a “conservative” investment objective, don’t let them change that objective to “moderate” or “aggressive” if they tell you that they need to do this to get you into the investment.
Beware of the offshore investment by promises that its tax free
Some things in life are just inevitable. One of them is paying taxes. While some municipal and state bonds may offer tax free returns, in general most investments have taxable returns and you cannot avoid paying them. Often, an offshore investment fraud is pitched as a “secret,” and is an opportunity you should not disclose to others. And, your money will usually be transferred to overseas locations, making it difficult to ever recover and even harder for the regulators to get at. A well known scam was run by Stanford Securities where it sold 8 billion worth of non-existent “high yield” offshore CDs located in Antigua.
Beware of Complex Investments or Strategies Where you can Profit like the Experts
Think about this–if the investment is so profitable, why do the investment promoters need to contact you to invest? Investment fraudsters using this tactic are trying to convince you that they have the inside information or skills known only to a select few. If you don’t understand the investment or strategy, or it’s some secret formula to trading- don’t invest.
Scammers often Engage in Affinity Fraud to Infiltrate Groups of People
Investment fraudsters often work their way into clubs, churches or organizations and befriend members who then refer their friends to them. If your friends appear to be making money, the scammer will pitch it to you or others using this to gain the trust of others in the group. Such affinity fraud relies on the trust you place in your friends and their choices. Generally, once one person invests, others will follow. This is a common way Ponzi schemes are conducted, using the later investor’s money to pay the earlier investors.
Beware of False Credentials and Representations of Experience.
Anyone can print a business card or website. Education and expertise can be faked. If the seller is truly legitimate, they should have no qualms about your conducting a background check. Use your resources to check the authenticity of the individual’s education and experience requirements by contacting the organization that issued the credential. You can contact your state securities regulator to determine if the person is registered in your state to sell investments and to check on that person’s disciplinary history.
Have You Been a Victim of Investment Fraud?
If you believe that you or a loved one are the victim of an Investment Fraud or other investment scam, call us today for a free consultation. Former Wall Street Attorney Melanie S. Cherdack represents investors throughout the United States and the Caribbean in claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-768-2499 or complete our contact form for a free consultation.