FLAG the UNSPORTSMANLIKE CONDUCT
Be suspect of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk.
Many investment scams involve unlicensed individuals selling unregistered securities—ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments.
Overly consistent returns
Any investment that consistently goes up month after month—or that provides remarkably steady returns regardless of market conditions—should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups once in a while.
Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you are seriously considering—including what it is, what the risks are and how the investment makes money.
If someone tries to sell you a security with no documentation—that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—he or she may be selling unregistered securities. The same is true of stocks without stock symbols.
Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error—or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions and be sure you know who holds your assets. For instance, is the investment adviser also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occur if an adviser is also the custodian of the assets and keeper of the accounts.
No reputable investment professional should push you to make an immediate decision about an investment or tell you that you have got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate.
Never rely solely on testimonials in making an investment decision. Fraudsters sometimes pay people – for example, actors to pose as ordinary people turned millionaires, social media influencers, and celebrities – to tout an investment on social media or in a video.
Sounds too good to be true
If an investment “opportunity” sounds too good to be true, it probably is. Remember that the potential for high investment returns usually involves high risk.
Skyrocketing account values
Depictions of investment accounts rapidly increasing in value and providing large returns are often fake. This a tactic fraudsters use to entice investors with the prospect of great wealth.
"Phantom Riches" sales pitch
Dangling the prospect of wealth, enticing you with something you want but cannot have. “These gas wells are guaranteed to produce $6,800 a month in income.”
"Source Credibility" sales pitch
Trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
"Social Consensus" sales pitch
Leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in—and so is my mom and half her church—and it’s worth every dime.”
"Reciprocity" sales pitch
Offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”
"Scarcity" sales pitch
Creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”