The Two Things You Need to Know to Avoid Securities Fraud
The ever-increasing number of investment schemes and investment fraud scams
out there can make it seem nearly impossible to avoid securities fraud.
Thankfully, there are just two things you need to know how to do in order
to drastically reduce your chances of becoming a victim: 1) Know how to
recognize the warning signs of fraud; 2) Know how to verify the information
you receive from promoters and financial professionals.
In addition to the well-known
red flags of investment fraud, here are a few more warning signs:
• Unregistered “private offerings” or other securities
products pushed by unregistered representatives;
• Promises of quick profits;
• Above-average consistency;
• Excessive complexity;
• Secrecy, “confidential” strategies, or failure to answer
• Unverifiable claims;
• Advanced fees;
• Products or strategies involving off-shore or foreign investments; and/or
• Unsolicited promotions (i.e. “cold calls).
The above signs don’t necessarily mean you’ve stumbled upon
an investment scam, but they certainly up the odds. If you encounter any
of these signs of securities fraud, make doubly sure to verify any information
you’re given by the promoter, sales rep, or financial professional
pushing the product. And, when verifying the information, make sure you
know where to turn.
To get background information on:
• an insurance salesperson, contact the
National Association of Insurance Commissioners;
• an investment advisor or investment firm, contact theSecurities and Exchange Commission;
• a stockbroker or brokerage firm, use the
Financial Industry Regulatory Authority’s BrokerCheck tool;
• a securities product, use the
SEC’s EDGAR Database.
If a professional or securities product is registered with a regulator,
it should appear in one of these databases. If not, contact your state
regulator for information. (The North American Securities Administrators
Association maintains a list of state regulators with contact information
here.) If you still can’t find any information on the promoter or product
after contacting all of the above agencies, consider that the biggest
red flag of all.