Checklist: Avoiding Investment Fraud

As an investor, you must worry about a number of different risks. Market risk, inflation risk and credit risk are just a few examples of the types of risks you face. One of the most dangerous risks is investment fraud.

There are multiple investment scams in the securities markets that you need to look out for. Some common scams include:

  • Affinity fraud
  • Foreign exchange trading schemes
  • Green schemes
  • Oil & gas schemes
  • Ponzi schemes

Make sure you're prepared before you make any investment decisions. Here's a checklist to help you avoid falling for investment fraud:

  • Be careful of unsolicited investment opportunities. We are constantly bombarded with e-mail messages about amazing investment opportunities. Although some may be legit, many of these so-called opportunities are actually scams.
  • There's always investment risk. Don't believe statements from people that an investment opportunity is fool-proof and has no risk. Con artists make guarantees to make investors feel safe and secure about giving their money.
  • Politeness doesn't mean trustworthiness. Most con artists have good manners and are very polite to lure in potential investors. Just because someone is nice doesn't mean he's honest.
  • Beware of promises of high returns. Con artists usually need to promise high returns to get investors to notice them. However, nothing is guaranteed. Investment opportunities with the potential for high returns usually have high investment risk. If it sounds too good to be true, it probably is.
  • Check out a company thoroughly before investing in it. Don't just read a small summary of a company before you buy its stock. Examine the company's financial statements. Read about its past history and what it plans to accomplish for the future.
  • Be cautious of salespeople that use high-pressure tactics. Con artists don't want investors to look too closely at the details of the investment opportunity. They'll try to pressure you to agree to the investment before you leave.
  • Think twice before giving an advance fee. Many scams are based on investors giving a fee upfront before any service is given. The con artist will then just disappear with the money.
  • Ask many questions, and check the truthfulness of the answers. Con artists rely on the fact that many investors won't check out the answers they give to questions. Ask as many questions as you can about an investment opportunity. Research the answers given to the questions to make sure you're being told the truth.
  • Don't make a rushed investment decision. You should always take your time deciding where you want to put your money. It's easy to make a mistake or fall for a scam if you make a decision in a hurry.
  • Get the details of an investment opportunity in writing. It's easy for people to make oral promises. Make sure you have everything in writing so you can study it to determine whether you want to make an investment. Any legitimate salesperson will be happy to give potential investors whatever they need to help in their decisions.
  • Check out multiple investment advisors before choosing one. Don't just rely on the first investment advisor you find. Ask friends or relatives for any reliable advisors that they've used with success. Check the credentials of the advisors and any references given to you.
  • Questions for Your Attorney

    • Who do I contact if I believe I am the victim of an investment scam?
    • I purchased stock based on false information from the company. Can I get my money back?
    • Where do I look to find a safe and reliable investment advisor?
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