Investment Scams 101

money1 150x150 Investment Scams 101Investment scams are becoming more sophisticated and it is becoming more difficult to spot a scam. These con artists are quite talented at deceiving people, resulting in more victims. The FINRA Investor Education Foundation recently surveyed investors age 55-64 about behaviors that put them at a higher risk of becoming a victim of investment fraud.

  • 80% have not checked whether a broker violated any laws.
  • 70% did not check their registration.
  • 65% did not check to see if the investment was registered with the SEC.

Victims of investment fraud tend to be self-reliant in decision making, above average financial knowledge, above average income, college educated and experienced a recent health or financial setback. Anyone with money is at risk of succumbing to the “influence tactics” used by fraudsters.

Common “influence tactics” are:

The Phantom Riches — dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”

The Source Credibility — trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”

The Social Consensus — leading you to believe that other savvy investors have already invested. “This is how Jim got his start. I know it’s a lot of money, but I’m in—and so are my mom and half her church—and it’s worth every dime.” “The President wants hydrogen to be part of the solution for Detroit…”.

The Reciprocity — offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”

The Scarcity Tactic — creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”

To spot a potential investment scam, consider these tip-offs:

  1. Unsolicited communications – consider the source. Don’t rely solely on the unsolicited fax, email, text or tweet. Ask, “why me?”
  2. Seminars that use short – term incentives and aggressive sales tactics.
  3. Guarantees and promises of unheard of growth – exercise some skepticism!
  4. Products in the development stage. Products and technologies may show promise, but they may be years away from coming to the market, let alone turning a profit!
  5. Pressure to invest immediately.

How to avoid becoming a victim of investment fraud?

  • Check out the seller. A legitimate investment professional must be licensed with FINRA, Securities and Exchange Commission, and in Maryland, must  be registered with the Maryland Securities Division of the MD Attorney General. Contact the Securities Division to confirm your stockbroker or Financial Planner is registered and ask about any complaints along with their BBB Review (
  • Check out the investment. Ask if it is registered with the SEC. If it is not registered, ask why.
  • Visit and answer the four questions found on their “Scam Meter” to tell if an investment you are thinking about might be a scam.
  • Join BBB on June 27, 2012 for a free Investment Fraud Seminar. Register online

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