Have you ever received an email urging you to invest in shares of a company whose stock price is about to explode? Or received a phone call from a vibrant stranger asking you to quadruple your money in a few months by investing in gold mines in Africa?
It sounds almost crazy that anyone would fall for it, right? Well, as per the North American Securities Administrators Association, investors lose billions of dollars to fraudsters each year.
Many people make the mistake of assuming that scammers only target millionaires. But ordinary people, ethnic communities, and even religious groups are common targets of investment fraud.
Investment fraud is a real problem, with many people falling victim to scams every day. Fortunately, as an investor, there are ways you can protect yourself from falling prey to fraudsters.
In this article, we’ll walk you through ten tips to keep your money safe. But if you’re going to identify a legitimate investment scheme from the illegitimate, you first need to understand how fraudsters work so you can avoid their conniving schemes.
How Investment Fraud Works
We often focus our attention on the reasons why victims send large sums of money to fraudsters and rarely look at the offenders and their actions. Unfortunately, this approach gives a very one-sided understanding of the situation.
While some of the tricks swindlers use aren’t new, today’s rapidly advancing world means they are coming up with more powerful ways to find new victims. Nevertheless, fraudsters essentially use a similar approach to lure unsuspecting victims.
The first step involves identifying potential victims. Investment fraudsters often target older people who, unlike younger people, are easy to convince. But anyone of any age can fall victim to investment fraud.
After they identify easy targets, the fraudster will try to establish trust with their target. This way, they won’t raise any red flags when they eventually ask for money.
As they get to communicate more, the fraudster identifies vulnerabilities in the target that they could exploit. This allows them to develop a strategy that will help present the false illusion of a successful investment.
The investors are led to believe their investments are safe when in reality, the fraudster is making away with their money.
But you don’t have to be defrauded. Here are some tips you can consider to slim the odds of falling prey to investment fraud.
1. Hire a Securities Fraud Attorney
Working with a securities fraud attorney is a great way of protecting yourself from investment fraud. The securities attorney will determine whether an investment opportunity is ideal for you and if the investment salesperson or firm has violated their fiduciary duty.
Additionally, if you do fall victim to fraud, a securities fraud lawyer will represent your interests during litigation if you choose to file a lawsuit.
2. Be Cautious With Highly Rewarding, Risk-Free Investments
An investment opportunity claiming to make you a ton of money without much risk is a risk in itself. Even bonds that are considered a guarantee come with some degree of risk, and returns are never assured.
So, watch out for lines like ‘huge upside with zero risk’ or any line suggesting likewise. Remember, if an investment looks too good to be true, it probably is.
3. Avoid High-Pressure Sales
Be suspicious of people who tell you that you must act immediately, or you’ll miss out on the opportunity. Fraudsters use this trick to get you to part with your money quickly. A legitimate investment business should always allow investors to take their time before they make a final decision.
4. Check if the Investment Is Registered
Agencies like the Federal Trade Commission and the Securities (FTC) and Exchange Commission (SEC) exist to ensure Americans are not defrauded off of their money by investment scams.
Legitimate investment businesses register their operations with the government and also provide financial statements for potential and existing investors to make informed decisions about their money.
5. Watch Out for Free Gifts
Everyone likes receiving gifts, and scammers are aware of this. As such, they’ll give their victims free products to butter them up so they’ll be more eager to trust the fraudster. This isn’t to say legitimate investment businesses don’t provide perks. So, you need to be extra careful and do considerable research before making a decision.
6. Is the Person or Company Selling Licensed to Operate?
Anyone selling investments has to be licensed by the relevant state authorities. Even if you know the salesperson personally, you need to do diligent research on their work and the state of their firm.
7. Get It in Writing
Be wary of any investment opportunity that has barely any paperwork. Fraudsters tend to avoid recording the transactions on paper. If they tell you they did not have time to put intricate details about the investment in writing, take your money and run.
8. Consult an Investment Professional
If you’re really interested in making the investment, a good idea would be to reach out to an investment professional, preferably someone disinterested and who will provide objective advice. Even though they might charge a fee for their insight, their information might help save your money.
9. Ask to See an Offering Circular or Prospectus
A salesperson or company claiming an offering circular or prospectus isn’t necessary or seems unwilling to provide them is probably a scam. You have to buy into an investment from a firm with written material about their business.
10. Research, Research, Research
Doing your homework is very important, no matter how reliable the person selling you the opportunity seems. Even if the person is a fellow investor, they might have also been duped into believing that the investment is legitimate.
The Bottom Line
In today’s interconnected world, anyone can easily fall victim to fraud schemes. Scammers are everywhere online trying to take advantage of their victims by convincing them that a fraudulent investment is authentic and well worth the money.
Investment always comes with risk, but you can reduce the chances of making poor investment decisions with the tips highlighted in this article.