80% of People Targeted by Investment Scams

80% of People Targeted by Investment Scams

Yahoo news reported a shocking statistic.  Almost 80% of US adults have been targeted by an investment scam.  FINRA conducted the poll and found that 40% of the people surveyed were unable to recognize the classic red flags of an investment scam.  They asked additional questions and found that 96% of people would not admit to being victim to a financial fraud so many investment scams go unreported.

With these shocking statistics it is important for people to protect themselves.  Here are some things you can do to make sure you don’t become victim to an investment scam.

  • Read the SEC updates on recent scams that have been busted.
  • If you are investing in a private offering check the SEC database to see if they have filed a Form D.  The Form D will provide information on the offering.
  • Read the SCOR disclosures associated with a Reg D offering.  Some companies will complete this in order to answer investor questions.
  • Research the industry.  Make sure that the claims a company is making coincide with what is happening in the market place.  For example if someone wants you to invest in a new technology that is currently being used by 30 other companies…. you should probably run away.
  • Run a background check.  You can a small fee and run a criminal background check on the owners.
  • Use an escrow account.  Instead of giving the company a check deposit the funds into an escrow account and only release them after you have received all of the necessary documents to prove your ownership.
  • Speak with the company attorney.  If the company does not have an attorney that is willing to speak with you that should be a red flag.  Issuing a private offering is a big deal and hiring council is part of that process.  Take down the information on the attorney and let them know you are doing it.  Check with the state bar to see if they are licensed.
  • Review their financial disclosures with your own CPA or accountant.  They will be able to point out red flags and tell you if the company is in line with industry standards.
  • If it sounds too good to be true it probably is.
  • Don’t be pressured.  If a company is pressuring you to invest without reviewing documents, consulting your accountant, or attorney – run the other way. Reputable companies will have no problems with you discussing the opportunity with your advisers.
  • Invest in what you understand.  If you know the industry, or are able to research it, then you are more likely to make a wise decision.  When you invest in things that you don’t understand or simply don’t make sense it is easier to be fooled by scammers.
  • Invest in U.S. based companies.  Sending money overseas is extremely risky and inadvisable.  If you want to have investments abroad focus on investing through a foreign exchange.
  • Stay local.  When you invest in a local company you have an opportunity to meet with the owners, inspect operations, and speak with their vendors and clients.  The more you know about a company the less likely you are to be scammed.
  • Read, read, read – everything.  Even if you are investing in a reputable company, through a broker dealer, or buying municipal bonds read the offering statement thoroughly.  Even cities have defrauded investors so take your time to read and research.

Statistically most investors will make a mistake from time to time.  If you have, just focus on being more diligent next time.  For more tips visit the SEC’s website.  They publish investor bulletins on a regular basis in order to educate the general public on niche industries and investment vehicles.

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