Scam artists don’t discriminate among victims. Almost anyone can be the victim of investment fraud. Our law office has seen people of many different educational levels,  age groups, professions, and backgrounds lose money in investment scams. The best thing you can do to protect yourself from investor fraud is to be on the lookout for common fraud tactics and to be able to recognize popular “red flags” of stockbroker abuse and misconduct. 

The Financial Industry Regulatory Authority (also known as FINRA)  has created a list of the seven most common “red flags” of investment fraud. 

FINRA’s top warning signs to watch for to stay on guard and avoid becoming drawn into a scam:

1. Guarantees: Be suspect of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk.
2. Unregistered products: Many investment scams involve unlicensed individuals selling unregistered securities—ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments.
3. Overly consistent returns: Any investment that consistently goes up month after month—or that provides remarkably steady returns regardless of market conditions—should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups once in a while./
4. Complex strategies: Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you’re seriously considering—including what it is, what the risks are and how the investment makes money.
5. Missing documentation: If someone tries to sell you a security with no documentation—that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—he or she may be selling unregistered securities. The same is true of stocks without stock symbols.
6. Account discrepancies: Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error—or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets. For instance, is the investment adviser also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occur if an adviser is also the custodian of the assets and keeper of the accounts.
7. A pushy salesperson: No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate.

There are also some less common but important red flags such as:

1. A stockbroker who pushes buying on margin or using equity from your retirement account;
2. A new account form that asks for little more than the investor’s name, address and social security number, or a stockbroker who does not discuss the investor’s current assets, goals for investment and risk tolerance at the time a new account is established;
3. Poor communication and/or poor service;
4. Inability to access your money when you ask for it;
5. Promises of high returns but low risk;
6. Is for a limited time only
7. Sold based upon “secret” information known only to the seller

FINRA also has a “scam meter” to advise you as to whether you should be concerned that an investment is a scam. 

Red Flags in the Financial Professional’s Background.  

The SEC has also published a list of things to be wary about regarding your investment advisor or broker. The below are red flags in a financial professional’s background that
you should consider before investing :

Even if an investment professional is in good standing with his or her regulators, you should be aware of potential red flags in the professional’s background.  SEC, FINRA, and state securities regulator records  such as broker check and the SEC’s Investment Advisor Public Disclosure system can be used to identify red flags for potential problems with an investment professional, including: 

(1) employment at firms that have been expelled from the securities industry;
(2) personal bankruptcy;
(3) termination;
(4) being subject to internal review by an employer;
(5) a high number of customer complaints;
(6) failed industry qualification examinations;
(7) federal tax liens; and
(8) repeatedly moving firms.  

Check Out  Investments for Red Flags

Unregistered investments magnify risk because often they offer little or no publicly available information. To check if a product is registered use the SEC’s EDGAR database or contact your state securities regulator. 

Have you lost money in an investment scam?


If you or a loved one have suffered investment losses as a result of any type of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 888-768-2499 or 305-349-2336.