It’s up to the individual to spot and avoid the Signs of Investment Fraud
Americans are losing billions thanks to brokers who forego ethics in the pursuit of their own financial gain. The Securities and Exchange Commission has stepped in with new regulations to stop this from happening, but where the SEC tries, it doesn’t always succeed. New rules haven’t stopped waves of innocent victims from losing money on fraudulent investments. Under current law–brokers can receive kickbacks from companies that want them to push their investment products. What can we do to protect ourselves from being victims ourselves? Read on to find out.
Spot Signs of Investment Fraud
Unfortunately, many people fail to do their homework before they invest, and fall prey to investment fraud. It’s important to frequently ask questions and verify the answers. Before you buy a security, it’s wise to conduct a background check on the person the investment. Research the company you are investing in thoroughly—until you have a strong grasp of how they do business and the risks involved. In some instances, you can also view the company’s financial statements online as a matter of public record.
Common tactics such as misdirection, over complexity, and time crunches are telltale signs of fraud. Below are some other classic signs that you are dealing with a fraudster.
Signs of Investment Fraud-Guarantees
Bernie Madoff was a big fan of guarantees. Bernie was sentenced to 150 years in federal prison. All investments have some risk, anybody that guarantees 100% return is either being dishonest or is out of touch with the reality of financial markets.
Signs of Investment Fraud-Unusually Consistent Returns
If it sounds too good to be true, it usually is. Be wary if your returns only increase or are unusually high. Even a solid investment will throw you a curveball from time to time.
Signs of Investment Fraud- Overly Complex Strategies
Stay away from a broker who comes in touting overly complicated theories and spouts out financial jargon you cannot understand. Any financial investment advisor worth their salt will be able to explain the complexities of finance in language simple enough to understand.
Signs of Investment Fraud-Incomplete Documentation
All stocks, bonds, and mutual funds that are publicly traded are required to have a prospectus. If these documents are missing, or missing important information then further inquiry is warranted.
It’s also a good idea to stay away from unsolicited sales and pushy salespeople that are pressuring you to make a fast, uninformed decision. If someone is telling you to “buy now,” run away. Even if they are not misleading you, that kind of sales tactic is indicative of untrustworthy business practices.
Do Your Research to Avoid Investment Fraud
As with most things in life, you cannot completely avoid every problem that comes your way, but with enough practice, you can become well averse to risk. Before you invest, always remember to take the time to get to know the person selling you the investment, even if you are already an acquaintance. Also, don’t forget to find out whether they are licensed to sell in your state by checking the SEC website.