How to Avoid Investment FraudHow to Avoid Investment Fraud
May 22, 2017 • Uncategorized
It is an unfortunate truth, but today’s markets are littered with unethical brokers looking to get more than they deserve from other people’s investments. Some fraudulent account managers start out with noble intentions, but the temptations of dipping into a pot that is not theirs becomes too overwhelming to ignore. Other schemers start out with malicious intentions from the beginning and design a plan to hijack the investments of others using wit and charm. Either way, you do not want to become the victim of investment fraud. Take the proper precautions to keep your money safe.
Types of Investment Fraud
There are many types of investment fraud to look out for. Pyramid schemes involve the recruitment of new investors to give money and then find others to do the same. The mastermind behind the scheme creates fabricated reports that are pleasing to the investors, but do not actually reflect income. Offshore investment fraud is also very common. Some countries outside the U.S. have fewer regulations on financial investments, so scammers take advantage of this. Telemarketing frauds involve uninvited solicitation of a “great new offer” to get you to invest in an exciting opportunity. Calls like this are almost always a scam.
Use Third Party Asset Verification
Fraud is much more difficult for unethical brokers to accomplish when someone else is looking over the numbers. Some fraudsters, such as the notorious Charles Ponzi, take money from investors but do not actually invest it. They alter statements every month to make it look like the account is growing, but in reality there is no more money than what was initially invested.
Third-party advising platforms such as Scottrade or TD Ameritrade do not allow advisors to alter statements, so the Ponzi scheme cannot occur. Private third-party brokers can also be useful to verify account statements. Get statements from both the advisor and third-party broker to compare numbers. If there are discrepancies, you will know something is up.
Perform Background Checks
It can be tempting to take a broker recommendation from a friend or family member at face value, but this is a common way for scammers to sneak into your wallet unnoticed. First, check to see if the broker is licensed. Lack of a license is often a telltale sign that the broker cannot be trusted.
The Financial Industry Regulatory Authority (FINRA) offers assistance in background checks through their BrokerCheck network. They conduct examinations of brokers and financial institutions to point out areas of concern and govern interactions between dealers, brokers and investors.
Recognize Returns That Are Too Good to Be True
Markets are inherently unstable. Even modest investors will experience some fluctuations along the way. In the case of the Bernie Madoff scandal, falsified returns were reported every month with a steady gain of approximately 1%. Even in times when the rest of the market was sliding down, Madoff’s investors saw rising returns. If you are promised unusually high profits or see returns that seem too good to be true, it probably means they are.
Do Your Research
No matter how exciting an offer seems, take some time to look into it before investing. Understand what the company does and how it makes its money. Find reviews online and look into the company’s financial statements on EDGAR. Talk to other financial advisors to get third, fourth and fifth opinions. It doesn’t hurt to be cautious.
Outsmart the fraudsters by being one step ahead of their schemes. Take the time to dig deeper before making a commitment as it could save you a world of trouble. If you find yourself the victim of investment fraud, an experienced securities attorney can help you recover some or all of your money.