How to Spot an Investment Scam Before You Become a Victimcontributed to an investment scam or other fraudulent behavior. Just as you might want to hone your skills in identifying the right kind of investment for you, it's also important to watch out for the red flags indicating that something is amiss.
The Broker Pitches the Opportunity as a Game ChangerIf the broker shares with you that the investment has a high growth potential, you need to be aware of the risks associated with this. Many of the investments like this have to do with new and creative distribution systems, patented technologies or disruptive business models. As an investor, you stand to lose big if these do not work out. These opportunities are rarely given to a large number of individual investors. Usually, companies with advantages this way will look for funding through institutional investors. It is a red flag if your broker is promising you this.
When you do speak with a legitimate broker about an opportunity, he or she may express excitement over working with you, but will not engage in any hard-sale pressure tactics or make promises about how this investment will change your life. Your investment decisions should instead be made after careful consideration and review.
Others in Your Social Circles Are Being Presented the Same OpportunityUsually, you will discover that investment scams are promoted to individuals in your social circle. For example, the con artist might attempt to join your local social organization such as a church and develop relationships with members before presenting the scam opportunity. Make sure you are wary of anyone who you have recently met who is speaking to you and your circle of friends about a very similar opportunity.
Returns Are Unreasonably SteadyWhile you generally expect that the investments that you make in mutual funds, stocks, real estate and ETFs will grow over time, it is rarely the case that this happens steadily year after year. Instead, usually losses will follow gains or gains will follow losses.
Investment scam promoters, however, will usually always guarantee that the returns you are likely to receive are much higher than what market rates would dictate. Bear in mind that anyone registered with the SEC should never be promising you investment returns or attempting to predict results that could be gained from your investment.
If you believe that you have already been duped in an investment scam, it is imperative to get legal advice as soon as possible. You may have grounds for a legal claim against the broker but you need to act quickly to protect your interests. Use these tips to try to ward off scams well before they happen.
By Jay Salamon