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4 Steps to Avoiding Investment Scams
By Anne Kates Smith, Kiplinger.com
Estimates are problematic, but Americans are thought to lose some $50 billion a year to financial scams. And there are indirect costs: bounced checks, late fees, trouble meeting monthly expenses and even bankruptcy. So it's not surprising that the emotional cost of fraud is also high, with 50% of victims reporting severe stress and more than one-third citing depression. The toll is compounded for senior victims, who have little time to make up for lost resources. "When elderly people lose their life savings, they lose hope," says Ricky Locklar, an investment fraud investigator at the Alabama Securities Commission. "To me, those crimes are worse than someone robbing the corner drugstore at gunpoint."
Here are four steps investors should take to protect themselves:
1. Recognize the art of the con. Scammers succeed with financially sophisticated victims because investment fraud is a crime of persuasion. Be wary of high-yield, low-risk offers, as well as anything with a guarantee. Question anyone who claims a special credential, experience or affiliation to gain credibility.
2. Resist pressure. Con artists exert social pressure by claiming that other savvy investors -- whether celebrities or members of your church -- are already on board. Don't be swayed by small favors, such as a cut-rate commission or a free meal, and don't be rushed by claims of limited supply designed to create a false sense of urgency. Learn about persuasion tactics by playing Finra's interactive "Con 'Em If You Can" game at www.conemifyoucan.org.
3. Do a background check. You can find information about registered securities firms and brokers, including employment history, licensing status, criminal events, investor complaints and pending investigations, at https://brokercheck.finra.org. If you're working with an adviser, check out https://adviserinfo.sec.gov for information about a firm and key personnel, including certain disciplinary actions. You can also search for an individual to view that person's professional background and conduct. At www.nasaa.org, you'll find your state securities regulator, through which you can access extensive employment, disciplinary and registration information about a broker or investment adviser. Check out commodities, futures or foreign exchange dealers at www.nfa.futures.org/basicnet.
4. Research the pitch. Use the SEC's Edgar database to research securities (www.sec.gov/edgar.shtml), or check them out with your state regulator.
Reprinted with permission. All Contents ©2018 The Kiplinger Washington Editors. Kiplinger.com.
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