8 Ways to Guard Against Investment Fraud
The recent stock-market rally creates a prime opportunity for con artists looking to take advantage of investors. In fact, as stocks surge so do the number of investment fraud complaints, says Andrew Stoltmann, a securities attorney in Chicago. That's because when people hear that the market is at a record high, "it becomes an easy pitch for financial hucksters to convince investors to put money into fraudulent investments or investments that exceed their risk tolerance level," Stoltmann says in a written statement.
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To lower your risk of becoming a victim of investment fraud follow these tips from Stoltmann:
1. Beware of unsolicited phone calls. You should be skeptical of anyone who calls and asks for money. Don't feel like you have to be polite and listen to the sales pitch. Simply hang up.
2. Watch out for high-pressure tactics. It's a red flag that someone might be trying to con you if he says he doesn't have time to explain an investment to you or to your regular investment adviser. Ditto if he says that you must make an immediate decision to take advantage of a money-making opportunity. The scammer is counting on the illusion of urgency to get you to hand over cash for an investment without checking it out first.
3. Avoid e-mail solicitations. Legitimate financial professionals rarely, if ever, send unsolicited emails touting investment opportunities. However, con artists frequently use e-mail to reach thousands -- sometimes millions -- of people in hope of getting even just a few to fall for their scams.
4. Be wary of quick returns and special access offers. Scammers often promise risk-free investments with guaranteed returns. And some might say that they're offering you special access to these investments based on your relationship with a mutual acquaintance or shared affiliation. The fact is, investments -- especially those with high returns -- carry risk.
5. Don't hand money over to an individual, especially one who claims that he'll do all the work and all you have to do is wait for results. Any check you write should go to an independent custodial institution, such as a brokerage firm. You can use the Financial Industry Regulatory Authority's BrokerCheck tool to get information about brokers and find out if they are properly licensed. And see Kiplinger's picks for the best online brokers. You can search for investment adviser firms and individual investment advisers on the Securities and Exchange Commission Web site.
6. Find out who audits your adviser. Your account and others your adviser manages should be audited by an independent accountant, who will verify the existence of the assets in your account. Make sure it's a firm you've heard of -- if you haven't, check with your state board of accountancy to make sure it's licensed. See How to Spot the Next Bernie Madoff for more tips on checking out a financial adviser.
7. Monitor your investments. You should receive regular statements from your brokerage firm. Compare your returns with an appropriate benchmark, such as Standard & Poor's 500-stock index for stocks of big U.S. companies. Look for excessive or unauthorized trading in your funds, and point out any questionable activity. Stoltmann says don't be swayed by assurances that such practices are routine or in your best interest.
8. Don’t be afraid or embarrassed to report fraud. It might be hard to admit that you've been lured into an investment scheme, but you should speak up if you've been treated unfairly or have become a victim of fraud. You can file a complaint with the Financial Industry Regulatory Authority, Securities and Exchange Commission and North American Securities Administrators Association.