Home How to Avoid Fraud

How to Avoid Fraud

A basic understanding of how scam artists work can help you avoid fraud and protect your money. Learning how to invest wisely can help you reach your financial goals. Here are some ways to help avoid being scammed:

Be aware before you share your contact information in response to an investment promotion.
Learn what you can do to avoid investment fraud including red flags to watch for and where to go for help.
Learn how to protect yourself online, and how to protect your social media accounts.
Learn about the different types of investment fraud, including those found online and in social media.

Remember: if you have a question or concern about an investment, or you think you have encountered a fraud, please contact the SEC, FINRA, or your state securities regulator to report the fraud and to get assistance.

How to Avoid Scams – VIDEOS

The SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force created a series of three videos with tips to help Main Street investors be their own first line of defense against fraud:

Safeguard your contact information.

Beware of common tactics that scam artists use.

Be skeptical about paying for investments by credit card or wiring money abroad.

Protect Your Social Media Accounts

The Internet has made our lives easier in so many ways. However, you need to know how you can protect your privacy and avoid fraud. Remember, not only can people be defrauded when using the Internet for investing; the fraudsters use information online to send bogus materials, solicit or phish.

Phishing is the attempt to obtain financial or confidential information from Internet users. This phishing expedition usually begins with an email that looks as if it is from a legitimate source, often a financial institution. The email contains a link to a fake website that looks like the real site. Fraudsters want you to provide account and password information, and then they have access to your account.

Here’s what you can do to protect yourself when using social media:

Privacy Settings: Always check the default privacy settings when opening an account on a social media website. The default privacy settings on many social media websites are typically broad and may permit sharing of information to a vast online community. Modify the setting, if appropriate, before posting any information on a social media website.

Biographical Information: Many social media websites require biographical information to open an account. You can limit the information made available to other social media users. Consider customizing your privacy settings to minimize the amount of biographical information others can view on the website.

Account Information: Never give account information, Social Security numbers, bank information or other sensitive financial information on a social media website. If you need to speak to a financial professional, use a firm-sponsored method of communication, such as telephone, letter, firm e-mail or firm-sponsored website.

Friends/Contacts: When choosing friends or contacts on a social media site, think about why you use the website. Decide whether it is appropriate to accept a “friend” or other membership request from a financial service provider, such as a financial adviser or broker-dealer. There is no obligation to accept a “friend” request of a service provider or anyone you do not know or do not know well.

Site Features: Familiarize yourself with the functionality of the social media website before broadcasting messages on the site. Who will be able to see your messages — only specified recipients, or all users?

On-Line Security Tips

As with all computer and web-based accounts, take precautions to keep your social media account information secure. Here are some security tips:

Pick a “strong” password, keep it secure, and change it frequently.
Use different passwords for different accounts.
Use caution with public computers or wireless connections. Try to avoid accessing your social media accounts on public or other shared computers. But if you must do so, remember to log out completely by clicking the “log out” button on the social media website to terminate the online session.
Be mindful of accessing your social media accounts on public wireless connections, such as at a coffee shop or airport. It is very easy to eavesdrop on Internet traffic, including passwords and other sensitive data, on a public wireless network.
Be extra careful before clicking on links sent to you, even if by a friend.
Secure your mobile devices. If your mobile devices are linked to your social media accounts, make sure that these devices are password protected in case they are lost or stolen.

Red Flags of Investment Fraud Checklist

Can you spot the warning signs of investment fraud?

Protect your investments by watching out for these red flags:

Unlicensed investment professionals

Aggressive sellers who may provide exaggerated or false credentials

Offers that sound “too good to be true”

“Risk-free” investment opportunities

Promises of great wealth and guaranteed returns

“Everyone is buying it” pitches

Pressure to invest right now

Over-the-top, sensational pitches that may have fake testimonials

Unsolicited pitches seeking to obtain your personal information

Asked to pay for investments by credit card, gift card,
or wiring money abroad or to a personal account

What You Can Do to Avoid Investment Fraud

Ask questions. Fraudsters are counting on you not to investigate before you invest. Fend them off by doing your own digging. It’s not enough to ask for more information or for references – fraudsters have no incentive to set you straight. Take the time to do your own independent research.

Research before you invest. Unsolicited emails, message board postings, and company news releases should never be used as the sole basis for your investment decisions. Understand a company’s business and its products or services before investing. Look for the company’s financial statements on the SEC’s EDGAR filing system. You can also check out many investments by searching EDGAR.

Know the salesperson. Spend some time checking out the person touting the investment before you invest – even if you already know the person socially. Always find out whether the securities salespeople who contact you are licensed to sell securities in your state and whether they or their firms have had run-ins with regulators or other investors. You can check out the disciplinary history of brokers and advisers for free using the SEC’s and FINRA’s online databases. Your state securities regulator may have additional information.

Be wary of unsolicited offers.Be especially careful if you receive an unsolicited pitch to invest in a company, or see it praised online, but can’t find current financial information about it from independent sources. It could be a “pump and dump” scheme. Be wary if someone recommends foreign or “off-shore” investments. If something goes wrong, it’s harder to find out what happened and to locate money sent abroad.

Protect yourself online. Online and social marketing sites offer a wealth of opportunity for fraudsters. For tips on how to protect yourself online see Protect Your Social Media Accounts.

Know what to look for. Make yourself knowledgeable about different types of fraud and red flags that may signal investment fraud.

Red flags for fraud and common persuasion tactics

How do successful, financially intelligent people fall prey to investment fraud? Researchers have found that investment fraudsters hit their targets with an array of persuasion techniques that are tailored to the victim’s psychological profile. Here are red flags to look for:

If it sounds too good to be true, it is. Watch for “phantom riches.” Compare promised yields with current returns on well-know stock indexes. Any investment opportunity that claims you’ll receive substantially more could be highly risky – and that means you might lose money. Be careful of claims that an investment will make “incredible gains,” is a “breakout stock pick” or has “huge upside and almost no risk!” Claims like these are hallmarks of extreme risk or outright fraud.

“Guaranteed returns” aren’t. Every investment carries some degree of risk, which is reflected in the rate of return you can expect to receive. If your money is perfectly safe, you’ll most likely get a low return. High returns entail high risks, possibly including a total loss on the investments. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” They try to plant an image in your head of what your life will be like when you are rich. Don’t believe it.

Beware the “halo” effect. Investors can be blinded by a “halo” effect when a con artist comes across as likeable or trustworthy. Credibility can be faked. Check out actual qualifications.

“Everyone is buying it.” Watch out for pitches that stress how “everyone is investing in this, so you should, too.” Think about whether you are interested in the product. If a sales presentation focuses on how many others have bought the product, this could be a red flag.

Pressure to send money RIGHT NOW. Scam artists often tell their victims that this is a once-in-a-lifetime offer and it will be gone tomorrow. But resist the pressure to invest quickly and take the time you need to investigate before sending money.

Reciprocity. Fraudsters often try to lure investors through free investment seminars, figuring if they do a small favor for you, such as supplying a free lunch, you will do a big favor for them and invest in their product. There is never a reason to make a quick decision on an investment. If you attend a free lunch, take the material home and research both the investment and the individual selling it before you invest. Always make sure the product is right for you and that you understand what you are buying and all the associated fees.