Investment scams and frauds don’t just happen to the unskilled or unwary investor. Research by the Canadian Securities Administrators, a council of provincial securities regulators in Canada, shows victims of fraud are just as likely to be older, knowledgeable investors, homeowners, well educated, and high-income earners who are confident in their own ability to make investment decisions.
Unfortunately those investors are also more likely to easily trust a person offering a fraudulent investment. And that’s not good. The ability to gain the victim’s trust is a key factor in any successful investment scam. And that’s a warning to all investors, when it comes to fraud prevention. Trust your instincts before you entrust your money to anyone.
Be wary of exclusive investment opportunities initiated by family friends, recent acquaintances, or someone you’ve just met at a club social event or through a religious or business group to which you belong. Affinity frauds and Ponzi schemes rely on the trust among group members to make an investment proposition appear acceptable and legitimate.
Be wary of any sense of urgency in an investment appeal. “Once in a lifetime,” “get in on the ground floor,” “act today.” These are the telltale phrases of fraud being made in person, over the phone, or in an e-mail message.
Be wary of outrageous performance claims. There are no low-risk, high-return investment opportunities or get-rich-quick schemes that are safe. Investors need to stick to an investment strategy geared to their risk tolerance and realistic investment expectations. If it’s a “sure bet,” it’s probably not.
Be especially wary of the Internet. Legitimate corporate and regulatory web sites can be a source of valuable information for investors. But anonymous chat rooms, message boards, and unsolicited e-mail are not. The Canadian Securities Administrators and your provincial securities commission web sites are a good first stop for investors researching a financial adviser’s credentials or an investment’s legitimacy.
Be wary of what you don’t know. If you don’t understand how an investment works, if you don’t know the person or firm selling it, and if you don’t know the risk involved and how much you might lose, there’s a good chance something fraudulent is going on.
What you don’t know should tell you something.