Americans lose more that a billion dollars each year to fraudulent investments, according to the Federal Trade Commissions. Companies committing fraud often operate a particular scam for a short period, quickly spend the money they make, and then close down and leave town. They may reopen under another name selling another investment scam.
Fraudulent investment promoters are persuasive and resourceful. They may tell you that they have key financial connections. That they have privy to inside information. That they will guarantee the investment. Or that they will buy back the investment after a certain time. To close the deal, they may serve up fake statistics, misrepresent a current event, or stress the unique quality of their offering. And, they will do everything to keep you from verifying their story.
Potential investors should learn to recognize a phony sales pitch. Here is what to listen for:
A "ground floor opportunity" for you on this investment, worth more than any other you are involved in.
- Guarantees of big profits quickly.
- Claims that no risk is involved.
- Lots of pressure to act now, now, now!
Potential investors should generally invest in opportunities they know something about. It is unlikely someone will make money in a business deal they cannot understand or verify. Do not rely on the settler's representation of the investment's value. You need to have confidence in your own knowledge.
Be skeptical of unsolicited phone calls about investment, especially those from out-of-state salespeople or companies you never heard of. If the deal sours, you may find it very hard to get your money back.
Before you invest with a company, check the seller's materials with someone whose financial advice you trust.
Beware of testimonials. Fraudulent companies sometimes hire references to claim that the firm's investments brought them sudden wealth. Ponzi schemes - where promoters use money from new investors to pay high return to early investors- may explain the praises.
If in doubt, do not invest. Before you invest, ask tough questions and get information from a variety of sources. If you cannot get credible information about the company and the investment, do not risk your hard-earned money. Remember, an investment advisor makes a lot of important financial decisions on your behalf- it should always be done in good faith and in your best interest.
Seek counsel if you think you have been wronged by your investment advisor. Securities fraud is a very real phenomenon. Despite the whining from critics, securities lawsuits are not a burden on the legal system- except to people practicing fraud. Securities suits are about one-tenth of 1 percent of all Federal civil cases and even smaller percentage of state lawsuits. And the number of such cases has not risen for more than 20 years.
No evidence exists that securities lawsuits are shrinking the booming stock market or slowing down innovation in the high-tech sector, as critics like to claim. Federal law already provides mechanisms for throwing frivolous cases out of court. Such cases are unlikely to get very far anyway, due to the incredible complexity and expense of securities cases.
Taking legal action against possible securities fraud does harm to only one group- the men and women who defrauded the investing public or helped others to do so by stamping their approval on the scam. And well it should- lying to people and taking their money is just like stealing.
American investors have not enjoyed the protection of sound and sensible securities laws. Before the major Federal security law reforms of 1933 and 1934, this country's vast class of workers and savers, widows, orphans, and retired people were legally helpless in investor schemes. Many people lost their life savings and were left destitute by scams. We should remember our history well. From the young to the elderly (especially), Americans in all walks of life continue to be victims of securities fraud. Any rollback of investor protections would simply benefit predatory types who now find themselves hampered by these securities laws and are sick of being held even to minimum ethical standards.
Today, investors can best protect themselves if they know the law and carefully consider any investment. But if you think you have been defrauded in an investment scheme, or by your broker, ask yourself these four questions:
If you answered "yes" to any of these questions, you may be able to recover your losses, for these are the warning signs of securities fraud.