Alternative investments can offer gains beating most traditional markets, making it a prime target for fraudsters. Comprehensive research is especially necessary for investors that have been the victim of alternative investment fraud. Past victims are considered easy prey and will likely be targeted by crooked investment operators. Adding insult to injury, the original schemer sometimes contacts the investor posing as a bogus investment recovery business. These con artists know their targets and will do everything in their power to look legitimate. They will often use a legitimate business model and proven strategies to hide the characteristics of the scam. Fraud is not relegated to the alternative investment space, it penetrates all levels of the market, costing investors billions of dollars a year. The key difference when it comes to unregistered alternative investments, the investor is responsible for due diligence and protecting themselves, this is why alternative investments are restricted to accredited investors. The SEC shields non-accredited retail investors from the risks in the private markets.

As alternatives have grown in popularity, so too have instances of fraud. According to a study by The Wall Street Journal, among firms selling private placements, half had at least one “troubled broker” out of every ten brokers (troubled brokers are brokers more concerned with their own commission than the quality of the investments they recommend). In total, the Journal found that one in eight brokers marketing private placements had three or more red flags on their records, “such as an investor complaint, regulatory action, criminal charge or firing,” compared to one in 50 among all active brokers. Additionally, the WSJ study revealed that half of the firms expelled by the Financial Industry Regulatory Authority over the past years sold private placements, despite a considerably smaller portion of the total industry than non-private placement firms.