Investment fraud is nothing new, but these days, it's more prevalent than ever. You can reduce your chances of falling victim to it, however, if you know the warning signs and use good judgment before turning your money over to a fraud artist.
1. "Low risk" promises
The North American Securities Administrators Association (NASAA) has a list of red flags to watch out for when it comes to investment fraud.1 Among these are promises of low risk with high returns. Such offers prey upon people who don't like to take risks, but the reality is that you just aren't going to find investments where you'll get a high return without some risk. Anything trying to tell you otherwise is bound to be a scam.
2. Calls for urgency
Another scam red flag is an investment "opportunity" that requires you to act quickly. As NASAA puts it, "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, some who can check the facts regarding the investment opportunity."
3. “Tax-free" offers
You should also avoid claims of "tax-free" opportunities based on off-shore investments, as these are also likely to be investment fraud traps. In such cases, the investor's money is transferred internationally, which not only makes it more difficult to get back, but it also makes it harder for investigators to help. If an investment is pitched as tax-free”, be very suspicious.
4. “Secret prime bank markets"
Another type of investment "opportunity" to avoid is one claiming to deal with "secret prime bank markets." These are fraudulent, without question.
As the SEC explains, "Prime bank programs often claim investors' funds will be used to purchase and trade "prime bank" financial instruments on clandestine overseas markets in order to generate huge returns in which the investor will share. However, neither these instruments, nor the markets on which they allegedly trade, exist. To give the scheme an air of legitimacy, the promoters distribute documents that appear complex, sophisticated and official. The sellers frequently tell potential investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva or other world financial centers. Investors are also told that profits of 100% or more are possible with little risk."2
5. New "friends"
Be wary of investment opportunities presented to you by a friend you’ve recently met. As NASAA points out, fraudsters will sometimes befriend others, especially seniors, in order to try to sell them on fraudulent investments. Such people are not above spending some time to gain your trust before taking advantage of you.
6. People who resist background checks
Always perform a background check on someone with whom you plan to pursue an investment opportunity. Make sure they're okay with this because if they resist, it’s a major red flag. Anyone who is legitimate will not have a problem with a background check because they have nothing to hide.
7. People who want to handle investments for you
If someone wants to take charge of your money and handle your investments for you, make sure they are 100 percent legitimate and qualified. Otherwise, you might feel safer remaining in charge of your own funds so that none of your money is used without your knowledge and permission.
8. People who stoke your fears
Legitimate purveyors of investment opportunities will not try to scare you into investing. Fraudsters, however, love to prey upon fears. They will often utilize disasters or traumatic events in one's personal life, if they are privy to the information, to try and scare an investor into a fraudulent opportunity.
9. Lack of regular reporting
When you are doing business with someone, be sure you are able to get regular updates and reports about investments. If you are already in business with someone who doesn’t provide regular reporting, chances are they might not be on the up and up.
The main takeaways are that if an opportunity seems too good to be true, it probably is, and that you should always make sure anyone you are dealing with is legitimate and trustworthy. Don't make knee-jerk investments. Do your research and help avoid becoming a victim of fraud.
1. https://www.nasaa.org/investor-education/warning-signs-of-fraud/
2. https://www.sec.gov/divisions/enforce/primebank/howtheywork.shtml