Do Your Research Before Entrusting an Advisor with Your Money
Most people spend a considerable amount of time researching a product before they make a purchase. It should be no different when making an investment. In fact, investors should put more time and effort into researching investment firms than for any other product or service. Before you invest your hard-earned money, be sure that you know who you're entrusting it to.
One way to avoid investment scams is simply to use the same tools used to research other commonly purchased items. Many people are no stranger to search engines like Google and Bing. For example, people use internet searches to research cars before purchasing or leasing them. A person might Google the make and model of a car to see what kind of gas mileage it gets, how many airbags it has and even what colors it comes in, among other things. The same principle should be applied when researching financial advisors.
Just last week, a man was convicted for investment fraud and sentenced to four years and nine months in prison as well as being required to pay back the $2.4 million he stole from unsuspecting investors. Sadly, these people placed their trust, and their money, into the hands of a man who had been debarred by the New York Stock Exchange and ordered to "cease and desist" by the California Department of Corporations.
Janamjot Singh Sodhi was running a Ponzi scheme, promising high return rates in a short amount of time. He did this from 2005 to 2011. Interestingly, even though he was debarred in 2006 and ordered to cease and desist in 2009, he continued collecting from investors. Some suspected that he must have been using an alias in order to get away with stealing millions from investors even after he got into trouble. This was not the case.
"He did not use an alias; investors could have found the information about his debarment through an Internet search," said a spokeswoman in the U.S. Attorney's Office for the Eastern District of California.
Had these investors done their research into Mr. Sodhi, they might have found out that he was a fraud before entrusting their money to him.
Most investment schemes are not as obvious, which is why knowing some tell-tale signs of potential fraud can be helpful. For example, consider it a red flag if your advisor says something like "Make the check out to me" or "I can guarantee above average returns." Investors can also use FINRA's BrokerCheck® tool to research the professional backgrounds of investment firms and individual brokers who are registered with FINRA. These are preventative steps that anyone can take, so before you consider handing over your money, make sure to do your research.