Investment Schemes, Scams and Fraud
Getting scammed is the worst kind of investment you can make
Investors know they need to be careful. Unwise investment decisions can be costly. No matter
how careful you are there is always some degree of risk. It's the nature of business. Some
people tolerate more of it than others. High risk can lead to high gains. There's nothing
wrong with taking a calculated risk once in a while. Some investments promise high returns
without any risk at all. That's right. They say you can't lose. It's a sure thing. If you
think this is possible you are ripe for picking by an investment scheme. Your pocket will
be picked faster that you can say, "Where's the money?"
No investment is "risk-free"
Remember, no investment is without risk. Period. If the risk is high you need to realize that
there is a good chance you will lose money on the deal. When someone tells you otherwise you need
to consider the source. That could be you brother, sister, mother or father. No, I'm not saying
they are trying to rip you off. Your close friends or relatives may have been duped by a scheme
themselves. Pyramid schemes abound on the internet. Emails detailing the latest penny stock
opportunity fill my spam folder daily. Asking a lot of questions and doing research, your due
diligence, before investing can protect you and your family. Use the tips and articles on
investment fraud to learn the techniques criminals use before you become a victim.
Common Investment Fraud Warning Signs:
- Promises of high rates of return
- Promises of guaranteed profit
- Promoters who use addresses in another country
- Promoters who use post office boxes or "mail drops"
- Promises that you are "getting in on the ground floor" of a new opportunity.
- High-pressure sales tactics from the people backing the investment
- Promoters who won't back up their claims and promises in writing
- Promoters who won't tell you how they are being compensated
Steps to Avoid Investment Fraud
While the steps to best detect and avoid a particular fraud will vary, depending upon its nature and the conduct of its promoters, the following
actions will help investors detect most instances of investment fraud:
- Remember that even the most professional website or investment brochure can be entirely fraudulent. Independently verify their claims.
- Obtain and review financial statements in advance of making an investment
- Verify the claims of the investment promoters. For example:
If they claim to have a contract with another major company, customer or supplier, contact the other company and find out if the claim is true.
If they claim to have applied for patents for new inventions, review copies of the patent applications, and verify that the applications have been submitted. (For patents submitted in the United States, this can be done through the website of the United States Patent and Trademark Office.)
- Investigate the principals of the company, and their background in the business. Are they associated with prior successful (or unsuccessful) ventures? Or, for that matter, have they ever been associated with a legitimate business?
- Check with government regulators:
Find out where the company is incorporated, and check its incorporation records in that state, and obtain its most recent annual report.
If the company or investment opportunity is of sufficient size or scope to require registration with the Securities and Exchange Commission (SEC), verify their claims against the filings they have made with the SEC, using the SEC's free, online EDGAR database. If you cannot find the company in the EDGAR database, contact the SEC at (202) 942-8090, and ask if there are any other SEC records of the company or its activities. Be wary of any investment opportunity that is not registered with the SEC.
Whether or not the SEC has information on the company, also check with state securities regulators to see if the state has information on the investment or its backers.
- Check with the National Association of Securities Dealers (NASD) to see if they have information about the promoters or backers of the investment opportunity.
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