Avoiding Investment Scams

Here are some tips to help you steer clear of investment scams.

• Don't judge a book by its cover. Salespeople are trained to be professional and charismatic. Con artists are salespeople, too; they just happen to also be criminals. They depend on you to be polite and to not interrupt them, hang up on them or delete their email.
• Educate yourself. Scams succeed mostly with people who have little investment experience or knowledge. Consult a professional financial adviser. Consult your friends and family. While you're starry-eyed with the potential profit at your fingertips, others are more likely to have an objective viewpoint.
• Trust only professional, licensed brokers and sales agents.
• Don't trust "top-secret insider information" and "hot tips."
• Don't rush to invest after receiving a single phone call, attending a single seminar, or meeting with the salesperson a single time. However exciting the prospect may be, do not "act now" or "act before it's too late."
• Ask the salesperson for a prospectus, a breakdown of the investment's procedures, risks and potential.
• Don't trust the "high returns, no risk" guarantee. An investment is a risk, just like playing roulette (but hopefully with better odds). No investment is a sure thing.
• Don't trust a salesperson who tells you not to tell anyone about the investment. Always question "secret" investment opportunities.
• Research every investment opportunity. Investigate the company, the product, the security, and/or the stock. Use resources available at the Financial Industry Regulatory Authority and the Securities and Exchange Commission to investigate the company and/or salesperson. If you are thinking of investing in a company not registered with the SEC, make sure you conduct a thorough background check on the company.
• Take extra precautions when presented with an overseas investment opportunity.
• Steer clear of opportunities that claim to be tax-free investments. Investment returns, like all legitimate ways to make money, are subject to taxes.
• When you make an investment, make the check payable to a company, never an individual salesperson.
• After making an investment, examine your investment reports and make sure no unauthorized transactions are being conducted.
• Ask questions of your adviser/broker/sales agent. Get answers. If your financial adviser or broker is slow to respond, gives vague answers, or denies your requests to withdraw money from the investment when you have a right to do so, contact the authorities.
• Don't sign anything you don't understand. Have a lawyer review any contracts you are asked to sign.
• Be wary of very quick returns on an investment. Scammers often lure cautious investors by sending a few small payments early on to encourage them to invest more.

If you are the victim of a scam, the best thing you can do is report it. Scammers depend on your uncertainty and embarrassment at being swindled to keep the scam going. Don't be embarrassed -- even the best get taken. If there's a time not to sit around and feel ashamed, it's when you suspect you're getting robbed blind.

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William Clark and his wife were victims of financial-planning fraud.

If you'd like to learn more about investment scams, you can follow the links on the next page.