There are several general highlights that can be indications of an investment scam. Be aware of these when you or family members are considering new investment opportunities. To reduce your chances of becoming a victim, use a reputable broker affiliated with a reputable company in your neighborhood or a reputable online brokerage house.
Be cautious of the broker or seller insisting (as part of their service to you) to use an overnight delivery service or messenger to collect your money or signature. Break all communication with this broker or seller.
Be cautious when you are being pressured to invest your dividends or profits back into the investment. As soon as you recognize the constant pressure, try to immediately have your money returned.
When a security broker telephones with an unsolicited sales pitch before 8am and after 9pm, they are violating the law. More information is available through the Securities and Exchange Commission.
In a “Pump and Dump” scheme, the promoter, broker or insider makes their money by selling their shares when the price of the stock is inflated. The investor who becomes a victim of these fraudsters lose money by trusting the unscrupulous insider who either quickly buys before the price goes up or quickly sells before the price goes down.
Watch out for the phone call, letter, or email from the supervisor or employer of the broker. These can possibly indicate something is not quite right. Perhaps there is too much trading or speculative trading from this particular broker.
In a Ponzi scheme, the one making the offer, promises high returns, profits, or dividends without investing their monies. The person making the offer uses a portion of the monies received by the latest investors to pay a “dividend” to previous investors. This scheme only lasts as long as new investors (victims) can be found.
With tougher rules for a company to be listed on a stock exchange, more company stocks are available on the Pink Sheets. Since there are no listing requirements and not a specified regulator, the potential for scams and fraud is enormous. However, the SEC does intervene when a penny stock scam violates anti-fraud provisions. You can find more information about Pink Sheet companies. The Edgar database typically includes companies that earn at least $5 million in a twelve-month period.
A useful tool is the Stanford University Law School Securities Action Clearinghouse that lists publicly traded companies facing class action lawsuits.
Here are a few guidelines to recognize investment scams:
Any telephone or email that requests your Social Security or credit card numbers where you did not initiate the communication.
You are pressured to reinvest your profits or dividends back into the investment.
Any offer or potential investment that requires a nondisclosure agreement so you can’t verify information about the offer or investment from any outside source.
Guarantees or promises of quick returns or quick profit.
Any offer or promotion relating to a business entity that features tax deductions or tax incentives for personal, family, family medical or household expenses.
Any offer or claim that “makes taxes disappear”.
You can file a complaint with the Federal Trade Commission in the USA or with the RCMP in Canada. Review the basics of recognizing scams here.