The Financial Industry Regulatory Authority (FINRA) has issued an alert warning investors to look out for several red flags of fraud. To avoid becoming a victim of investment fraud be on the lookout for the following red flags:
1) Guarantees: Always remember that all investments have a certain degree of risk. Beware of anyone who guarantees performance of an investment.
2) Unregistered Products: Often investment scams will 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.” Ask questions and know your investment.
3) Overly Consistent Returns: Investors should be suspicious when an investment consistently goes up every month or where the investment provides steady returns despite market conditions. Keep in mind that even the most stable investments experience “hiccups” sometimes.
4) Complex Strategies: Beware of individuals who have a complex investing strategy which they claim yields great success. You must understand what you are investing in, which includes being fully aware of the risks associated with the investment and how the investment will make money.
5) Missing Documentation: Do not accept missing or minimal documentation relating to a potential investment. Again, you must research your investments thoroughly and if someone is unwilling or unable to provide you with a prospectus relating to a stock or mutual fund or a circular regarding a bond then that person may be seeking to sell you an unregistered security.
6) Account Discrepancies: Make sure to review your account statements thoroughly. Missing information, unauthorized trades, or other problems with your account may indicate churning or fraudulent activity. Know who is holding your assets. Fraud occurs easier in situations when an advisor is both the custodian of the assets as well as the keeper of the accounts.
7) Pushy Salesperson: You should never be pushed into making an immediate decision regarding an investment. You do not have to act right now and acting under pressure may result in problems later on. If a person is pushing you into an investment and doesn’t give you time to reflect on the decision, stop and find someone who will give you adequate information and time to make such important decisions.
Of course, there may be other red flags to look out for, but the key is to be on the lookout for them. Do not ignore such red flags! Do your research on those who are offering investments and on the investments themselves. Do not make rash decisions and make sure you remember that all investors are potential targets of fraud.
Jason Doss is the owner of The Doss Firm, LLC, an Atlanta-based law firm devoted to representing consumers across the country in a variety of areas including investment disputes and consumer class action litigation. Mr. Doss earned his J.D. from Florida State University in 2002 and his B.A. from the University of Florida in 1997.