How to Spot Investment Fraud
Investment fraud can be difficult to spot. It typically starts with an unexpected phone call, email, or text message from either someone familiar or from strangers on social media or dating apps.
Warning signs for investments include unrealistically high returns and attempts to conceal them from friends and family, among other red flags. It’s also essential to familiarize yourself with your rights as a crime victim.
1. They don’t have a website
Websites are an invaluable way of gauging whether an investment professional is legit. A bit of digging will reveal more information than expected about an investment firm, including any previous fraud incidents or regulatory concerns that might exist.
Fraudsters use exclusivity to lure investors, offering deals which are only open to certain groups or “one-time deals.” Such opportunities should be investigated carefully. If a potential investor detects exclusivity as part of an offer from an unscrupulous individual or firm, that should raise suspicion and cause further investigation.
Be wary of websites that look identical to real firms’ sites; quick searches may reveal these addresses are residential homes or fields instead of business headquarters. Also be suspicious of investment information posted to social media from someone claiming to be a broker or investment adviser.
2. They don’t have a phone number
Fraudsters often utilize social media platforms like Facebook and Twitter to spread investment scams. Sophisticated fraudsters may gain entry to someone’s account or send messages from an unknown profile; be wary of new posts, tweets, or direct messages promoting an investment opportunity (even from someone you know).
Don’t believe any claims that everyone is doing something. So-called affinity frauds target individuals with similar identities in regards to religion, ethnicity, social circles, military service and age groups.
Don’t be taken in by testimonials and celebrity endorsements alone. Fraudsters sometimes pay actors to pose as real investors or celebrities in promotional videos; they can even falsify study, statistic, and review results. Be wary of guarantees, unregistered products, and overly consistent or high returns that seem too good to be true.
3. They don’t have a physical address
Fraudsters often pose as investment professionals on social media to bait unsuspecting investors with promises of huge returns. If someone close to you recommends an investment, check off-line with them to confirm it’s legitimate advice before acting upon it. Be wary of firms which discourage sharing details of their offerings with friends or fellow investors.
Scammers may attempt to hide their identities by providing misleading addresses for companies they represent or by registering under multiple names with state and national regulatory bodies. Searching an address on Google can help confirm its legitimacy; also be wary of companies who require you to pay fees or insurance before investing; this may be a telltale sign that they’re running an investment scam.
4. They don’t have a business license
Be wary of any unsolicited investment offer that comes your way – including those coming through social media or text message from supposed acquaintances. Before making any investment decisions based on such offers, it’s wise to “Ask and Check” directly with the source, whether a firm or individual. Compare any reports received to those available on FINRA’s BrokerCheck or similar regulatory information sources; look out for differences like fonts not matching up, items seemingly pasted into documents without approval, and personal contact info rather than firm specific email or phone numbers or contacts for you as these should all be red flags before proceeding further.
Fraudsters also often pose as registered brokers and investment advisers on social media by creating accounts, profiles or handles that resemble those used by genuine professionals or firms. For more information, see FINRA’s Investor Alert on Impersonation Scams.
5. They don’t have a financial statement
Scammers frequently attempt to deceive investors into parting with money by threatening legal action or fees, or swapping investments to make a profit; for example, buying shares in an undervalued listed company and then pumping up their price before selling at higher value later.
Be wary of glossy brochures, glowing testimonials and overstated promises that offer returns above market returns. Additionally, any firm urging or discouraging discussion of an investment should raise alarm bells.
Before sending any money, always request documents. Be wary of anyone asking you for personal contact info or account numbers as this could be an indicator of fraud.
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