Two Signs of Securities Fraud and other Investment Fraud Red Flags

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 questions;
• 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.


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