How to Avoid Securities and Investment Fraud

Most of our clients come to us after having lost a significant portion of their life savings to investment fraud. After such a devastating loss, many investors wonder what they can do differently next time to avoid ever being in such a position again. Our firm has put together this guide to help educate the public about avoiding investment fraud, and to give investors a better chance of spotting fraud before suffering such significant losses.

How can I identify an investment scam?

Red flags can help to identify an investment opportunity as fraudulent. The following list is a good start to keep in mind when evaluating an opportunity.

Unsolicited Offers

Many fraudsters solicit investors via unprompted means, including mass emails or Internet postings touting their fraudulent offerings. If you come across an offering in a mass email or online posting for which you are unable to find additional financial reports from third parties, the offering may be fraudulent.

Guaranteed Returns

Any offering made with guarantees of returns could be a fraud. These promises could be either guarantees of high returns or guarantees of consistently scheduled returns. If an equity investment is promised to provide returns at a certain rate despite normal market fluctuations, you could have cause for concern.

Secretive Practices

If obtaining clear information about your investment is difficult, including investment contracts, account statements, proof of the investment’s registration, or proof of the seller’s security licensing, the seller may be attempting to conceal an improper scheme.

Account Discrepancies

The broker’s activity in your account may not be in keeping with your instructions, and unauthorized trades or missing funds may exist. Discrepancies could be evidence of churning or other types of fraud.

Pushy Salespeople

Brokers or advisors should not pressure you into making immediate decisions about your investments. High-pressure tactics can be used to perpetrate fraud. Even with legitimate investment opportunities, they are improper.

How can I protect myself against investment fraud?

Research your investment professional

A variety of means exist for learning more about the persons offering you an investment opportunity. Verify professionals’ licensing status to make sure that they are qualified to offer the investment. Three resources recommended by FINRA on its website for determining professionals’ current status and history before investing with them include the following:

“For a broker or investment adviser, use FINRA BrokerCheck or call toll-free (800) 289-9999. BrokerCheck allows you to confirm not only licensing and registration, but also whether an individual or firm has a history of complaints or regulatory problems.

For an insurance agent, check with your state insurance department. You'll find contact information through the National Association of Insurance Commissioners (NAIC).

For all sellers, be sure to call your state securities regulator. You can find that number in the government section of your local phone book or by contacting the North American Securities Administrators Association or (202) 737-0900.”

Research your investments

Find out if the investment you are considering is registered with the Securities and Exchange Commission or SEC. Securities are usually required to be registered with the SEC, with some exceptions. Researching an investment’s registration status is possible through the EDGAR Database on the SEC’s website. While registration with the SEC does not guarantee that an investment is immune from fraud, a lack of registration can be a red flag if other potential issues exist regarding the investment.

Consult legal counsel

If you are considering an investment and do not entirely understand how it works or the paperwork you are being asked to sign, an attorney experienced with securities matters should be able to offer counsel. It is better to be safe than sorry, and consulting professional guidance may help you avoid a devastating loss.

If you believe you may see any of these red flags of investment fraud, you should seek legal counsel immediately. Opportunities to recover losses are limited, and the sooner you act, the more likely you may be able to recover what you lost. Contact us today for a free, confidential case evaluation and learn more about your rights as an investor.

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