Know the Red Flags of Fraud

Has someone ever called or e-mailed you about an investment that sounded too good to be true? If they used words like “high return”, “no risk” or “one-time opportunity”, that great investment was probably a scam.

Take the Investment Fraud Awareness Quiz  to see how much you know about frauds and scams.  There is no “typical” victim of fraud. Professional scam artists go where the money is, which means if you have money to invest, you’re vulnerable to fraud.

Red Flags of Fraud

Most scams have at least one of these common red flags that are easy to spot. Before you invest, use the Investment Fraud Checklist to check for these red flags. Read more about how to Protect Your Money.

Guaranteed high returns – no risk  

There’s no such thing! In investing, the higher the potential return, the higher the risk. This type of sales pitch is often aimed at people who live on a fixed income or those nearing retirement who are worried about not having enough money.

Insider tips – get in now

Scam artists use this tactic to pressure you into making a quick decision. They make the offer more attractive by suggesting they have secret information about a company that the general public doesn’t have. They pressure you to act now to "get in on the ground floor”. Don’t! This kind of sales pitch appeals to our fear of missing out on an opportunity.

Offshore investment – tax free

You can defer paying taxes, but you can’t avoid paying them. This type of deal is often pitched as a secret, but not for reasons you might expect. By asking you to keep the deal to yourself, scam artists know you won’t have to answer hard questions and comments from family, friends or financial advisers who might see through the scam. Often with scams like this, your money will be transferred overseas, making it harder for the authorities to investigate and even harder to recover.

Profit like the experts

These scams are pitched as opportunities known only to a select few who are said to be making a lot of money. The scam artist convinces you that they have access to this inside information. An example is the "prime bank" scam. Investors are told about a secret market that only the world’s largest banks know about and are then given an exclusive opportunity to participate in this secret market. The catch is that secret prime bank markets don’t exist.

Great investment opportunity – your friends can’t be wrong

This scam relies on the trust people place in their friends and the fear of not keeping up with them financially. Scam artists often target religious, ethnic and other groups by working their way into the organization and befriending members in order to rip them off. Don’t be a victim! Check out anyone who approaches you with the investment opportunity—no matter how trustworthy they may seem.

Visit  Avoiding Fraud  to learn more about how to recognize and avoid common investment scams.