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Tips for Avoiding Fraud

Here are three key strategies you—or anyone you know who fits the profile of a potential fraud target—can use to help distinguish good offers from bad ones:

  1. End the conversation: Practice saying "No." Simply tell the person, "I am sorry, I am not interested. Thank you." Or tell anyone who pressures you, "I never make investing decisions without first consulting with my ___. I will contact you if I am still interested." Fill in the blank with whomever you choose—your spouse, child, investment professional, attorney, or accountant. Knowing your exit strategy in advance makes it easier to leave the conversation, even if the pressure starts rising.
  2. Turn the tables and ask questions: A legitimate investment professional must be properly licensed, and his or her firm must be registered with FINRA, the Securities and Exchange Commission, or a state securities regulator —depending on the type of business the firm conducts. In addition, with very few exceptions, companies must register their securities with the SEC before they can sell shares to the public.

    So, before you give out information about yourself, ask a few questions first:

    To check out the seller, ask: Are you and your firm registered with FINRA? The SEC? A state securities regulator? If so, which one(s)?

    And then: Verify the answers.

    FINRA BrokerCheck
    www.finra.org/brokercheck 
    (800) 289-8999
    SEC's Investment Adviser Public Disclosure Database
    www.adviserinfo.sec.gov

    Also, be sure to call your state securities regulator. You can find that number in the government section of your local phone book or by contacting the North American Securities Administrators Association or (202) 737-0900.

    To check out the investment, ask: Is this investment registered with the SEC or with my state securities regulator?

    And then: Verify the answers.  Use the SEC's EDGAR database of company filings to confirm what the salesperson tells you. Also call your state securities regulator to find out what they know about the company.

  3. Talk to someone first: Be extremely skeptical if the person promoting the deal says, "Don't tell anyone else about this special deal!" A legitimate investment professional won't ask you to keep secrets. Even if the seller and the investment are registered, it's always a good idea to discuss these sorts of decisions with family or a trusted financial professional.