How to Protect Yourself From Securities Fraud - Essential Tips for Investors

How to Protect Yourself From Securities Fraud – Essential Tips for Investors

Investment fraud is on the rise. It’s essential to understand what the warning signs are so that you can protect yourself from being taken advantage of.

Remember that “guaranteed returns” are never valid. Any high return entails risk, and you will likely lose some or all of your investment.


Beware of High-Pressure Salespersons

Fraudsters often try to put the squeeze on investors to get them to invest in their bogus money-making schemes. They may push for a quick decision, say the investment is only available to a few people, or offer high-return investments unlikely to yield such returns. They may also tout a tax-free opportunity or insider information, which is illegal in the United States (and Canada).

A few easy steps will help you stay out of financial trouble. For instance, always ask for written materials before you invest. Ensure you read the prospectus or printed offering material — especially the risk factors. Furthermore, until you are sure that someone is authentic, never give out personal financial information over the phone until you are certain that someone is authentic, like a credit card or bank account number.

You can learn more about protecting yourself from securities fraud by visiting the SEC’s investor education website. The SEC and FINRA are dedicated to protecting investors and are committed to bringing cases across the country to stop those who commit fraud and defraud investors out of their hard-earned savings.

Know Your Limits

Millions of Americans lose money to fraudsters who exploit people’s greed and fears about the economy yearly. It is essential to learn about the different types of securities fraud and how to protect yourself from them.

Scammers often lure unsuspecting individuals into fraudulent investment “opportunities” with promises of high returns with low or no risk. They may contact investors by phone, email, or in person. Many scams are perpetrated by people who know the victim or use information gained through a personal or professional connection to gain the trust of a potential investor.

A good rule of thumb is always asking for documentation and being suspicious if an investment opportunity or broker does not provide it. Also, remember that brokerage firms must send confirmations of transactions and account statements regularly, which can help you verify what cash and securities are in your accounts. 

Be Wary of a Call Out of the Blue

Many investment frauds involve offers that seem to come out of nowhere. If you receive a phone call or letter regarding an investment opportunity that seems “too good to be true,” it probably is. This is especially true if the offer involves investments not registered with the SEC or your state securities regulator.

It’s also a bad idea to give out personal information over the telephone, such as your account numbers, Social Security number, or mother’s maiden name, even if the requester says they are calling from your bank, government agency, or other legitimate source. Instead, contact the company or government agency at a number listed on your statement or in the phone book.

Accordingly, investment fraudsters often target people nearing or in retirement. They also tend to target college-educated, optimistic, and self-reliant people. Some fraudsters even target those who have suffered recent financial losses. This can make victims more vulnerable to subsequent scams that promise them a chance to recoup their losses.

Ask Questions

While it is not always clear whether your losses are due to market conditions or advisor misconduct, there are sure warning signs. For example, if your losses far exceed current market returns or you haven’t received your statements from your financial institution, you may be a victim of investment fraud. Additionally, it is essential to know that independent individuals can commit securities fraud by manipulating the stock market or insider trading.

If you believe you have been a victim of securities fraud, contact your local law enforcement office and the SEC immediately. By reporting your loss, you can begin recovery and help prevent more investors from becoming victimized. Harmed investors enjoy substantial protections under U.S. securities laws and are entitled to financial compensation for their losses.

Take Your Time

FINRA offers a variety of information and resources to help you recognize vital warning signs and avoid investment fraud. For example, learn about investment scams that target specific groups such as religious or ethnic communities or older people. Or read about promissory note fraud, which often involves false promises of high returns or investments that are easy to make.

Constant vigilance is the best defense against securities fraud. Know your risk tolerance, investing goals, and experience level, and stay within those limits. Be wary of high returns for little or no risk, especially if the returns are guaranteed and tax-free. Insist on receiving a prospectus and written offering materials before investing or trading, and read them. Don’t give credit card or banking information over the phone or in an email unless you are confident that the person on the other end is legitimate. Never use encrypted messaging apps to communicate with brokers or other persons promising to make you money.

Don’t forget to report any investment fraud you witness to law enforcement. Doing so can start the recovery process and ensure the responsible parties are investigated and prosecuted.

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