Protect Yourself from Investment Fraud

If you are like most people approaching retirement, you have worked hard all your life and put aside a nest-egg to help supplement your Social Security or pension.  Whether your nest-egg is small or large, the last thing you want is to lose it all to investment fraud.

The Securities and Exchange Commission has published a booklet titled "A Guide for Seniors - Protect Yourself Against Investment Fraud" (SEC Pub 144). The information is actually invaluable to investors of all ages, not only seniors.  While everyone may want to obtain a copy of this brochure, below are a few of the more important points made in this publication.

How to Avoid Investment Fraud

* Seniors tend to be especially vulnerable to scam artists who come across as being particularly "nice" or helpful.  Some seniors are too polite to turn down a friendly salesperson or they may feel they are indebted to someone who has provided them with investment advice.  Do not fall for the opposite tactic, either ... salespeople who prey on our financial fears and assure you that they have the best or, perhaps, the only solution.

* All investors need to ask questions and take the time to confirm the answers.  Do not rely on the references they give you ... do your own independent research on the company and the investment. One place to start is at the SEC's EDGAR database at www.sec.gov/edgar.shtml.  You can also contact your state's securities board.

*  Check out the salesperson and make sure they are licensed to sell securities in your state.  Find out if they have been disciplined by using the online databases of the SEC and the Financial Industry Regulatory Authority (FINRA).  Do not rely on someone simply because they say they are a "senior specialist" or "retirement advisor."  Check out the meaning of Investment Professional Designations at the FINRA website at www.finra.org/investors.

* Take your time before making an investment and be wary of those deals that are unsolicited or "too good to be true."

*  Do not trust a financial advisor who says, "leave everything to me."

Red Flags that Could Signal Possible Investment Fraud

*  Any promised returns that are significantly higher than normal are almost certainly risky ... if not completely fraudulent.  High returns typically means high risk; low returns should correspond to a lower risk ... although even that may not be true.

*  Be skeptical of guaranteed returns.

*  Ignore pressure to send money immediately.

*  Ignore and/or thoroughly investigate "once-in-a-lifetime" offers.

Common Types of Fraud

Every investor should be aware of the different types of fraud.  By educating yourself, you are less likely to be a victim of one.

*  Ponzi and Pyramid Schemes:  In these investments, the money manager basically robs one person to pay another.  The first people who get into the deal will initially get a high rate of return, and they happily promote the investment to others.  Unfortunately, eventually the money runs out and everyone loses both the high income and their principal ... since it was given to other people!

*  Oil and Gas Scams:  While there are legitimate deals, a large number of them are fraudulent deals promoted by telemarketers. If this is not your business, it is probably best to avoid these deals.

*  Promissory Notes:  These are widely promoted loans the investor supposedly makes to a company in return for a high interest return ... and they are commonly nothing more than a scam.

*  Prime Bank Fraud:  The salespeople convince you they are purchasing prime bank financial instruments overseas through secret deals only they can arrange.  The best that can be said about these deals is ... RUN!!

*  High Return or "Risk Free" Investment:  These are often actually unsuitable investment products, such as speculative or risky deals which are sold to the elderly, who are told that they are low-risk.  Confirm, confirm, confirm before taking on a new investment, especially if you have been promised a high rate of return.  Make sure you completely understand what you are buying.  If you can't understand it, don't buy it.

*  Internet Fraud:  The internet is just one more way these fraudulent salespeople try to contact potential investors.  Be as skeptical of something you receive over the internet as you would be of a phone call or letter from a stranger.

Where to Get More Information or File a Complaint

Sometimes, no matter how careful you are, you will need the information below to either file a complaint or check out an investment advisor.  I highly recommend that all investors use this information before dealing with any new investment advisor or purchasing a new investment product.  Print it out and keep it in your file with your brokerage statements.

Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C.  20549-0213

Telephone (800) 732-0330
Fax:  (202) 772-9295
Website for senior citizens:  www.sec.gov/investor/seniors.shtml

Complaints:  www.sec.gov/complaint.shtml
Email complaints:  help@sec.gov

FINRA Investor Complaint Center
1735 K Street N.W.
Washington, D.C. 20006

Fax: (866) 397-3290

File complaints online at: www.finra.org

Verify registration and disciplinary information about brokers and brokerage firms:

FINRA BrokerCheck at www.finra.org/brokercheck
Telephone:  (800) 289-9999

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