Avoiding Scams at the Holidays: Part Three of a Six-Part Meyer Wilson Blog Series
Has your financial adviser, or a friend, or someone on the Internet via
e-mail or social media offered you an investment opportunity this holiday season?
If so, have you heard or read anything like this?
- "This stock has made incredible gains!"
- "We're talking about an investment opportunity that has virtually
- "You cannot lose your initial investment."
- "The lowest return you could possibly get on this investment is 20%
- "This stock has outperformed the Dow Jones Industrial Average each
year for the last ten."
- "This is a chance to get in first with a company like Apple. I'm
doing it now!"
The fraud research branches of both FINRA and the SEC report that statements
like these are among the most-used tactics to get investors to turn over
their hard-earned and hard-saved money for various investment scams. Fraudsters
spend considerable amounts of time honing scripts and practicing pitches
to woo potential investors. None of them are true.
Here is a sample sales pitch used by FINRA surveying investors about fraud
scams last year:
My friends informed me about a very reliable high-yield investment program
I've been extremely impressed with. The program pays from 2% to 3.4%
daily depending on the investment plan you choose. The minimum term of
investment is 180 days, after which you can either recover the sum of
your initial investment or continue further. You can also invest on a
compound basis and get huge returns. It guarantees the safety of the invested
amount and even pays a 5% referral commission.
Every sentence in this pitch is a red flag. There's no such thing as a "high-yield investment program."
People less averse to risk can choose to invest in the stock market and
perhaps earn a high yield in an up market or upon selling stock at a high stock
price, but it's not anywhere close to guaranteed. High yields can
happen, but they're never guaranteed and only come with significant
risk. Beware of words that guarantee not only a specified return, but
a return of your initial investment. Sometimes these scams are
Ponzi schemes, where money is collected from new investors to pay off previous ones—and
there's no investment at all. When you ask for your money back, there's
often none left.
Another fraudulent sales pitch:
We are a XYZ Co., a well-known and profitable investment management company
specializing in real estate, business startups, high-yield stocks [and
long laundry list of other investments]. We'd like to share with you
our revolutionary investment system that is incorporating short-term and
long-term investments into an around-the-clock profit-generating machine.
Red flags in this pitch include the touting of the company's performance
and the unique investment program. Investors should always research a
company before investing through it, even if the company has been used
for years by a trusted friend or family member—and
especially if you've never heard of it.
And truly, there is no "revolutionary" investment system that
exists in the world of finance. Successful investments are a combined
function of research,
asset allocation, timing, and perseverance through the ups and downs of the market.
For more examples of fraudulent sales pitches, visit
FINRA; read this fantastic investor alert from the
SEC; and listen to this shocking "Audio Life Sales Pitches (MP3)" [scroll to very bottom].