Tips to Watch Out for Investment Scams

Watch Out for Investment Scams

The JOBS act permits all kinds of investment schemes to be announced and publicly promoted to investors. Now, this means potential investors are in for a hard time. Scam artists can now target potential investors by promoting all sorts of dubious schemes.

If you think the victims of these fraudsters are ignorant folks, you have to think again. Some sophisticated people have fallen for fraudulent schemes in the past and they will fall for these schemes in future. Bernie Madoff, for instance duped more than 8,000 people during his 20-year career. Some of his victims were bankers, hedge fund managers, investment analysts and other people who should have known better.

Actually, it does not matter how much money you have or how sophisticated you are. A crafty insurance agent, financial planner or a wily investment advisor may have your number.

According to official records, victims in the US alone lose over $40 billion annually to scam artists. This number is obviously on the low side since many victims are too embarrassed to report their losses. Majority of the victims are men and many of them are highly educated and financially literate people.

“The Silver Bullet”

The typical fraudster offers a hook in the form of a “sliver bullet” to the potential victim. This is usually a rare investment opportunity available to the target through the fraudster. Most con artists also give the prey a short window period. Asking you to invest immediately or lose the opportunity ensures that you do not evaluate the so-called investment opportunity or discuss it with reputable experts.

Investors should be careful if the investment sounds too good to be true. Any deal that offers you great returns with minimum risk is likely to be a scam. Again, if the promoter of the investment opportunity declines to put things in writing, this is a huge red flag.

Typical Targets

The typical targets of scam artists are senior citizens, people who have suffered recent financial losses and people who are mourning. Other soft targets are people in frail health and people managing their capital or assets for the first time.

Fraudsters also prey on people who enjoy taking risks because these are excellent targets. People who are open to new ideas are also prime targets because they are usually dissatisfied with the returns they get from conventional investments.

Scammers love targeting a group of people in a particular location. For instance, if a con artist gets one gullible victim in a country club or in a church, this one person can spread the word and unwittingly line up many other victims.

What to Check for

If a self-proclaimed investment guru targets you, the right call is to check into the person’s employment record. If this guru has been bumping around from firm to firm, this is a bad sign and you should stay away. It also pays to check out suspicious characters on websites that register and regulate the following experts:

Insurance agents
Stockbrokers
SEC-registered investment advisers
Financial planners
State-registered investment advisers

In addition, you can find details of both publicly-traded companies and privately-placed investments right here.

Do’s and Don’ts

One smart policy you should adopt is this. Never conclude a business transaction on the phone. Before you invest your hard-earned money, you should hold meetings with the investment promoter and discuss the terms of the deal in a real life offline office. Again, you should never invest in businesses you don’t understand. Avoid deals that involve assets that are impossible to verify (like oil wells, gold mines and gas deposits). You should also seek independent professional opinions before you invest in any business. Any business that requires you to mortgage your home or borrow money is bad news and you should avoid it.

Watch out for Investor Scams

In addition, you should stay away from any business that requires you to open an offshore account especially if the account is difficult to trace. Again, if you have to pay money into any bank account, the account should be in your name and should not be controlled by the promoter of the business.

Finally, (and this is very important) con artists want you to feel the deal they are offering you is a-once-in-a-lifetime opportunity. However, there is one pertinent question here. If the deal is so good, why would the promoter want to share it with you?

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