Saturday, May 15, 2021

Warning Signs of an Investment Fraud

Every investor and intending investor should know certain things to avoid investment fraud. When it comes to investing, appearances can be deceiving.

Many con men are fond of using companies with trustworthy facades to instill confidence in their victims. They go all out. From rented office spaces, to hiring receptionists, and creating a professionally designed brochures. They do not stop there. They also go as far as building impressive web sites. All these and more are all tools used to create the appearance of legitimacy.

Additionally, these conmen can use any sort of traditional communication channels to commit investment fraud. Besides the telephone, mail, and internet, investment fraudsters may advertise in well-known publications to appear legitimate.

The truth of the matter is that investment fraud can look perfectly legitimate in all the ordinary ways. This raises the question: “How can I protect myself from investment fraud? What are the warning signs to tip me off before I lose money?”

To answer these questions, below are the most common warning signs of potential investment fraud.

Most Important signs of Investment Fraud

High return in a short period of time.: Never trust anyone who promises high investment returns in a very short time frame. Above market return is the number one characteristic of investment fraud. The high return promise is the bait designed to hook you.

Low risk, no risk, or a guarantee.: This is known as the second most common characteristic of investment fraud. Watch out for track records so consistent they appear almost guaranteed. The truth is every investment strategy has a weakness. This makes the  “no risk” inconsistent with reality. The more you are guaranteed, the more you should examine what you are being guaranteed against.

Mingling Investment.: Your investment account should be held separately in your name by the third-party custodian. Avoid mingling or aggregating your assets into a pool with other investors. You should also be wary of any investment salesperson who doesn’t want you to get a second opinion.

Related: Beginner Investment Ideas Ideal for Entrepreneurs

Investing on the Spot.: Stay far away from high pressure sales tactics. It is a big red flag and a possible investment fraud when a salesperson demands you invest on the spot. Leave immediately if the salesperson is trying to make you feel guilty, stupid, or intimidate you into deciding. You should understand the investment before accepting any type of risk. Legitimate investments that are good today are still good tomorrow.

Invitations to join exclusive investment organizations.: Beware of any invitation to become part of a select group of active investors and financial experts. Exclusivity of any kind most likely points to potential investment fraud.

Other Warning Signs

Investment strategies explained with sophisticated Terminology.: Avoid any investment opportunities that uses fancy terminologies instead of commonly used words. A legitimate salesperson will try to simplify any complex terms to help you understand. Investment fraud may complicate the simple in order to intimidate you from looking deeper behind the facade. Never buy into the idea that you are too old, young, or financially inexperienced to understand an investment. If you don’t understand it, then don’t invest in it.

Investment Opportunities without a prospectus or memorandum.: Another sign of an Walk away from any salesperson who dismisses the importance of disclosure documents required by law as mere formalities.

Unregistered and Unlicensed Brokers.:  As an investor, you should not buy investments from brokers working for an unregistered or unlicensed firm. It is wise to verify all registrations with regulators when dealing with unfamiliar persons or companies.

Investments accompanied by unprofessional contracts.: Take note of spelling errors, careless wording, and vague or imprecise language. Noticing these in an agreement can point to more serious problems with the investment.

Noticing any of these warning signs doesn’t necessarily mean you’re faced with investment fraud. However, it should put you on notice to be extra skeptical and perform more detailed due diligence than normal.

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