Securities fraud covers a wide range of scams, from insider trading to pyramid schemes to boiler room sales tactics. It can seem overwhelming. But you can learn to spot the telltale signs of securities fraud.
Be a skeptic
Con artists offer high returns with little risk. They come prepared with an elaborate story that seems to explain it all—like the government and Wall Street being in an unholy alliance to keep this great opportunity secret from the average person. We won’t say Washington and Wall Street are pure as the winter snow, but these conspiracy theories are the sign of a con.
So take your cue from the legendary movie The Godfather. When the mafia don is offered surefire riches, he responds simply “Why me? Why do I deserve this generosity?” If that question isn’t answered credibly, move on.
Con artists prey on insecurity. They count on being able to drop fancy terms and describe elaborate schemes they know you won’t understand, but will be afraid to ask. True financial professionals want their clients to understand exactly what they’re investing in and what the risks are. A reputable financial adviser embraces their role as the person who simplifies investing for their clients and talks in a language they understand.
Beware pressure tactics
If an investment pitch requires you to make a decision today or tomorrow, run. There is no such thing as an investment that’s a good thing today, but will be gone tomorrow. Furthermore, reputable professionals will want to get paperwork on your net worth.
We won’t tell you reputable investment advisers never engage in sales tactics. But the focus is not built on getting your signature inside of a week.
The law is your side. Economic vitality depends on investor trust, so both the FBI and the SEC take securities fraud very seriously. If you spot the warning signs, get them involved.