Investor Alert: How to Avoid Investment Fraud
There is no guarantee against investment fraud. Whether you are a beginning or a veteran investor, you should take all the necessary steps to protect yourself from investment fraud. Read our tips on avoiding investment scams.
Some Popular Investment Scams
1. Guaranteed, High-Yield, Risk-Free Investments
Any veteran investor would tell you that there are no such things. However, there are fraudulent individuals who are able to solicit investors by promising this.
In this type of scam, the investment product actually exists and the agent or the sales representative is often legitimate (licensed to sell the investment product in question). The problem lies in the fact that the product is often misrepresented and potential investors misled into believing that investing in the product has no risks and will bring in guaranteed returns.
2. Oil and Gas as well as Telecommunications Investment Fraud
There are legitimate telecommunications and oil/gas investment companies. Recently, though, there has been a rash of investment scams involving fraudulent oil and gas as well as telecommunications investment ventures.
Such offers are usually unsolicited. In other words, somebody would call, email or mail you out of the blue to offer you shares in a startup venture involving telecommunications and oil/gas companies. These offers, moreover, are often made following highly popularized news focused on these industries.
3. Investments Offered Online
The internet has given investment scammers a great venue for defrauding people of their hard-earned money. These scammers will put up a glitzy website that looks extremely professional then solicit investors to invest in their fraudulent schemes. Once they get the money, the scammers pack up and abandon the website then create a new one through which they can solicit more investors.
4. Promissory Note Scams
In this type of investment fraud, the scammers will ask you to loan them money. In exchange for your investment, you will be given a promissory note that details an incredibly high rate of interest and very favorable terms.
If ever you are offered this kind of deal, be sure to verify the legitimacy of the offer. While there promissory notes, per se, are viable investment instruments, most of the promissory note deals widely offered today are scams.
5. Pyramid or Ponzi Investment Scams
In this type of investment scam, you are solicited to become a member of a group that may or may not have products to sell but guarantees a lifetime of ballooning income. To become a member, you will have to make an initial investment. To earn money, you have to recruit new members. The more members you recruit, the more money you will earn.
Unfortunately, the potential of unlimited returns does not really exist. These investment scams do pay money, as long as new investors are joining the fold. That's right. The membership fees of new investors are the group's source of income. Once new investors stop coming in, the money would dry up.
6. Overseas High Yield Investment Programs
Some fraudsters will tell you they have access to certain investment programs that are available only to people in very high places. These investment programs' underlying securities are supposedly prime bank instruments overseas. You'll be told you're lucky to have even heard of it and to be offered a chance to invest as this program is a highly-guarded secret by financial moguls.
As those who have fallen for this line will tell you, such offers are actually scams. These investment programs do not actually exist. The prime bank instruments on which they are allegedly based are also fictitious.
Beware the Signs of Investment Scams
- They seem too good to be true.
Here's the typical scenario. You will be offered an investment deal that will earn you a lot of money. This investment deal is also risk-free. You'll also be told (or it would be implied in so many ways) that your earnings are guaranteed.
After tantalizing you with the vision of virtually risk-free, guaranteed returns, you will be told about the "minimal investment" you have to make. This investment is "minimal," of course, considering the amount of money you are "guaranteed" to get in return.
To protect yourself from investment fraud, never take up a deal that seems too good to be true. Remember, what is too good to be true probably isn't. No investment has guaranteed earnings and zero risks. To be promised such is a clear sign that someone's out to get your money.
They are always urgent.
Most investment scam perpetrators always say that theirs is a once-in-a-lifetime, will-expire-soon deal and if you don't sign up and pay money now, you'll miss the opportunity entirely.
If an agent of a potential investment deal is pressuring you to sign and pay up immediately, take a step back. It's probably an investment scam.
They are often unsolicited.
Most investment scams are offered by companies that you haven't even heard of until they called you or emailed you with an offer. The literature they provide also often consists of promotional brochures rather than legitimate prospectuses. Oftentimes, they also throw in the names of government agencies like the SEC and the IRS to make their deals appear legitimate.
Protecting Yourself against Investment Fraud
Research, research, research.
Never believe something is true just because the agent/broker/dealer selling you the investment told you it is. Always independently verify whatever information you are provided.
You should also vet the background of the agent/broker/dealer selling you the investment. Just because he is well-spoken and seems kind, nice and upright doesn't mean he is not a scammer. Check his license and credentials. Do not forget to check with the SEC and with your state securities regulator.
Ask a lot of questions.
You should ask the investment broker/dealer/agent to explain everything about the offer. Do not be afraid to ask questions. If he does not seem to want to answer your questions, beware.
Don't make rush decisions.
Be cautious if the sales representative/broker/dealer tries to rush you into a decision. Scammers often rush their targets into quick decisions to prevent them from verifying facts and doing research.
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