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How to Avoid Investment Scams and Fraud - Guide 2

By Edited May 21, 2015 0 0

1. Be cautious with anyone who tries to sell you a security with missing or no documentation at all. With regards to stocks or mutual funds then check if they have no prospectus and with regards to bonds, no offering circular.

The scammer on this case could be selling you unregistered securities since he or she has missing documentation. Be careful with aggressive, pushy and self-assertive sales people.

Some of these fraudsters will urge and push you to make an urgent decision about an investment that they are advertising then ask you at the end that you need to sign-up immediately. Be suspicious of anyone who guarantees that an investment that he or she is offering will perform only through a positive way without worrying about losses because all investments carry a certain degree of risk.

2. Know the different strategies that scammers use to victimize investors. Some of these fraudsters may even credit a highly complex investing method that will make you appreciate for the unusual success that they can maneuver. 

Take note that legitimate investment professionals should be able to make a clear approach and give an exact reason of what they are doing.

Don't trust anyone with your money unless you had fully understood the kind of investment that you are seriously taking into consideration. It could involve various levels of risks that's why you need to know how the investment could grow in order for you to profit.

Be cautious when dealing with unregistered products because there are some unlicensed individuals selling unregistered securities which ranges from stocks, oil or gas deals, notes, bonds, hedge funds, or prime bank investments. You also need to protect yourself from any investment with overly consistent returns.

An investment that always go up every month or gives a high and steady return from the start despite of poor market conditions could be very suspicious. Take note that even the most stable investments can experience difficulties and challenges every now and then.

3. Ask the right questions about investments and verify answers from the people who publicize these investments for the purpose of selling or causing an investor to want them. Anyone who wants to invest is a potential target of scam and fraud but you can decrease or limit your exposure to these scams if you know how and what to guard against. 

Inquire whether the endorser or organizer of the investment opportunity that you are interested into is truly licensed to sell you the said investment. You need to confirm what regulator issued the license that he or she is referring to.

Aside from that, you also need to check and confirm if the license has ever been revoked or suspended and if ever it was, check when and why. Take note that a legitimate securities salesperson must be properly licensed, and the firm that he or she works with must also be properly registered with the SEC, FINRA, or a state securities regulator and this will depend on the kind of business the firm operates or administers. 

You can find out about the SEC's Office of Investor Education and Advocacy since it provides different services and tools to take care of the problems and questions that you could face as an investor. You can visit their official site with regards to investing at SEC's Investor Information.

They will not tell you what investments for you to make, but they can help you on how to invest wisely and avoid various kinds of fraud that is out there waiting to victimize innocent investors. As an investor, this is a great oportunity to learn if you're truly interested in investing your hard-earned money.

4. Make sure to verify the answers that the salesperson or promoter had talked about from the investment that was being offered. If you want to verify about an investment adviser, visit the SEC's Investment Adviser Public Disclosure web site where you can search for an investment adviser's firm and view that firm's Form ADV. 

Investment advisers have to file Form ADV to register with the SEC and/or the states where they belong. The ADV form contains valuable information about the investment adviser and its business operations including certain disciplinary events involving the adviser and its key personnel. 

If you are dealing with investment sellers, you can verify them by calling your state securities regulator from your local phone book or by contacting the North American Securities Administrators Association. For an investment broker, you may use the FINRA BrokerCheck to verify them since they will let you confirm the licensing and registration of the broker that you are dealing with. 

You can also confirm through them if the broker or the firm that he or she is working with has a history of regulatory issues that were negative or some complaints. You may visit their website or call toll-free (800) 289-9999. If you are dealing with an insurance agent, verify the person with your state insurance department or through the National Association of Insurance Commissioners (NAIC) so that you could also find their contact information.

Tips & Warnings:

  • Don't rely too much on friends, co-workers or family members for advice when it comes to your own investments because some of the reported victims had started and created their investments that come from the advice given by family members or close friends. 
    Always inquire whether the investment that is being offered was registered and by which regulator. Many investors will usually buy securities and products that are registered with the SEC or with state regulators for safety and security.
  • Avoid being so open to new investment information from different sources that you don't know much about unless you are sure that they are safe. Some of the new investors could fall as victims even after attending a free investment seminar.
  • As much as possible, try to avoid owning too many of those high-risk investments which includes options or private investments, penny stocks, futures, promissory notes, especially in foreign currency.


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