Investment fraud schemes can come from places you least expect.
According to a release from Financial Industry Regulatory Authority (FINRA), Ruth and Len Mitchell were defrauded by their neighbor and friend. They
were unaware that he was running an $11 million
Ponzi scheme. The Mitchells placed their trust in this man, let him keep their books
and even had him do their personal taxes. The Mitchells knew that their
neighbor ran an investment company, which is why they trusted his advice
to invest $13k in real estate bonds. Unfortunately, a man who claimed
to be their trusted friend turned out to be a man out for their money.
This is just one example of a larger problem. Far too often, fraudsters
attempt to build personal relationships with people solely for the purpose
of stealing their hard-earned money. According to the FINRA), this tactic
is common enough to have been given a name:
source credibility. This particular scheme also involves something called
social consensus. Many of the Mitchells friends and others in the community were defrauded
by this man. The idea that "everyone else was doing it" made
it seem safe when it was not. Even when you feel secure in your investments,
be discerning. Many investment fraud schemes begin with a false sense
FINRA gives three steps that every investor should take to avoid this particular
type of investment fraud:
Question. Before investing your money, ask questions. Take advantage of the many
avenues for checking both the
investment and the
seller. If the investment is not registered with the U.S. Securities and Exchange
Commission (SEC) or the seller is not licensed, be sure to ask why.
Don't invest on source credibility alone. If someone has come to you and is trying to get you to invest based on
source credibility alone, then this could be a red flag. Of course, not
all colleagues and friends are out for your money, but you should avoid
investments made on rapport alone.
Don't invest on social consensus alone. Like number two, avoid making investments based on social consensus or
popularity alone. If a seller approaches you and their main selling point
is that "everyone else is doing it," be sure to ask more questions.
Meyer Wilson is a team of investment fraud lawyers dedicated to recovering
your money lost as the result of investment misconduct. Investment fraud
schemes like this are unfortunate, but they do happen. If you lost a significant
amount of money due to investment firm or financial advisor misconduct,
then call us today.