How to Spot the Red Flags of an Investment Seminar Scam

6/1/2010

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Falling victim to a fraudulent investment scheme can mean losing anywhere from a few hundred dollars to your life savings. While most people might not see the harm in sitting through an investment seminar, Better Business Bureau recommends researching the investment company first, rather than run the risk of falling for a financial siren song over a free lunch.

Investment scams and schemes can come in many forms and a common technique to lure people in is the offer of a free financial seminar over lunch. In one recent example, the Securities and Exchange Commission shut down a Ponzi scheme which stole $20 million from retirees in California and Illinois. The scammers invited senior citizens to estate planning seminars and later coaxed their victims into buying promissory notes for purported Turkish investments.

“Free lunch seminars can seem like an easy way to get a meal, but attendees run the risk of getting drawn in by the slick presentations and promises of big returns,” said Alison Southwick, BBB spokesperson. “Unscrupulous seminars often use the promise of a free lunch to lure in leisurely senior citizens who have time and exploitable retirement accounts and real estate.”

When listening to an investment pitch, BBB recommends looking for the following red flags:

Requires a large up-front investment. Untrustworthy schemers might try to convince investors to pay a lot of money upfront so they can get out of town with a large haul, rather than wait for the funds to trickle in. 

Promises high returns for low risk. Every investment comes with a level of risk. Typically the amount of risk increases in line with the potential return on the investment. If the seminar is trying to sell an investment scheme that claims a high return with little or no risk, beware, even if it comes with the promise of a money-back guarantee.

Employs high pressure sales tactics. Seminar leaders often use high pressure sales tactics to get people to sign up without thinking it through. They might claim that there are only a few spots left or that you need to get in on the ground floor today to see the largest earnings. Any reputable investment company will let you take your time and do your research and will not pressure you into signing a check.

Relies on off-shore investments. Many hucksters try to give their scheme an air of sophistication by relying on overseas investments such as foreign currency, property, stocks and bonds. They also might claim—incorrectly—that you can avoid taxes by investing overseas.

Sounds too good to be true.  At the end of the day, if the offer sounds too good to be true, it probably is. Always listen to your instincts because the potential payoff is rarely worth the risk.

For more advice from your BBB on financial planning and investment visit http://www.bbb.org/us/consumer-tips-finance/.

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