Investment fraud takes many forms including pyramid or “Ponzi” schemes, oil and gas investment schemes, “fix-and-flip” housing scams, and many others. Below are some red flags that may indicate investment fraud. Remember, if it sounds too good to be true it probably is.
Investment Fraud Red Flags:
- Low risk investments with high returns; every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
- Pressure to make a quick decision (High pressure sales tactics).
- "Guaranteed" returns; investments tend to go up and down over time. Be skeptical about an investment that promises, or regularly generates, positive returns regardless of overall market conditions.
- Learning of an investment offer through individuals in close communities such as churches or clubs, also known as “Affinity Fraud”.
- Requests your 401K and/or Individual Retirement Account (IRA) to be rolled over or transferred into a self-directed IRA such that the proceeds can be utilized for an investment.
- Insider tips. The seller states or insinuates that he or she has access to inside information that the general public does not have.
- Avoid anyone who credits a highly complex investing technique for unusual success; if you don’t understand the product or strategy, or you can’t get complete information about them, it’s not for you.
- “Slick” appearances don’t mean success. The website or documentation looks impressive, but gives little detail about what the investment is about – lots of words that don’t say much.
- Beware of the groundbreaking “new technology” or other special (but super-secret) methods or assets, which are going to take the world by storm and be the greatest thing since sliced bread.
- Be suspicious of unregistered investments; these schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
- Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most fraudulent schemes involve unlicensed individuals or unregistered firms.
- Rollover Opportunities. Be suspicious if you don’t receive a payment or have difficulty cashing out. Dishonest promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.
- If you believe you have been victimized investment fraud or if you wish to report suspicious activity, please file a report here.