How To Guide: Tips on Avoiding Investment Scams

You read about investment scams, but you never think it can happen to someone like you. 

We have all read about the Bernie Madoffs and Allen Stanfords of the world. Unsuspecting investors duped into some of the largest ponzi schemes in the world. You think to yourself that it can never happen to you or anyone you know – that you are too smart. You may be right, but a lot of victims are smart and sophisticated investors. The lure of safe investments with high returns is appealing to everyone. Don’t get caught chasing returns in investments you do not understand.

High Yield and No Risk

Every single investor would like to be involved in investments with no risk and high returns. Every investor should know that high returns usually means corresponding high risk.  Low risk investments invariably means you will get low returns. Remember, if an investment sounds to good to be true, it probably is.

Understand Your Investment

Look at the fund’s or investment’s prospectus or offering documentation.  Do your due diligence before investing.  Don’t assume the regulators – the SEC, FINRA, or your state securities commissioner will protect you.  By the time regulators get involved it is too late.  Finally, if you can’t understand the investment after you conduct your research, don’t invest.

“Friendly Referrals” 

Crooks are everywhere.  If your friend recommends a broker it does not mean that you are in the clear.  Numerous investors are defrauded by people at their country club, friends of friends, members of your church.  Fraudsters have been known to infiltrate and befriend entire communities, organizations, and groups and run away with their money.

False Promises

Some advisers will promise anything to get you to invest.  These promises are generally violations of the securities laws because investment advisers and brokers cannot predict the future performance of the securities and investing markets.  If an adviser makes you a promise or a guarantee about returns, get them to put that promise in writing.  After every conversation you have with your broker, you should email them the sum and substance of the conversation and ask your broker to confirm in writing that you are not misunderstanding the conversation.

Broker and Product Licensing

Make sure your broker is licensed. Ask your broker for his CRD number and go to to see if your broker is properly licensed and whether the broker has been disciplined for unlawful behavior.  Some brokers have one or two minor instances on their records after many years in the profession.  However, an advisor that has a pattern of customer complaints of the same type or moves from brokerage firm to brokerage firm due to terminations may be a red flag of a repeat offender that you should stay away from.


Contact Information