The Securities and Exchange Commission on Thursday announced charges against a group of unregistered funds and their owner, for allegedly fleecing retail investors through a $ 1.2 billion Ponzi scheme. The victims include more than 8,400 individuals, many of whom are elderly.
Federal Trade Commission.
“The frightening truth about fraud is scammers scam and liars lie,” said Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, or FINRA, which regulates brokerage firms.
To lessen the chances of becoming a victim, there are precautions investors should take, according to the regulators whose job it is to catch these scams.
Before you begin working with financial professionals, check their registration records to verify that they are, in fact, licensed, and have not had any egregious complaints lodged against them.
If the financial professional does not show up in a search, you should think twice about working with him or her, said Lori Schock, director of the SEC‘s Office of Investor Education and Advocacy.
“Most of the retail-facing fraud that we see is committed by those who are not registered,” Schock said. “It is unlicensed people selling unregistered products.”
You should also look at records periodically to check up on a financial professional.
“If you have been working with the person for a while … go ahead and take a peek and see what you see,” FINRA’s Walsh said.
Not all disclosures that show up on a professional’s or firm’s record are a red flag, said Walsh. But they should be a conversation starter.
You should be wary of investments that are overly complicated.
“If a retail investor can’t understand the investment, they ought not pursue that opportunity,” said Owen Donley, chief counsel at the Office of Investor Education and Advocacy at the SEC.
All the information about the investment, such as through filings made with the SEC, should be readily available. If a financial professional won’t make investment paperwork available, that’s a “huge red flag,” Donley said.
Be sure to ask a number of questions, including “How do I pay you?” and “How do you get paid?” Walsh said.
The answers could include commissions or fees, but there might be some other method for payment, such as a sales contest or a proprietary product particular to that firm.
Use that information to assess whether the firm is a fit for your risk and liquidity needs, Walsh said.
Monthly statements should show any transactions you made, including the amount.
“Especially in down markets, it can be depressing to look at your statements,” Walsh said. “But you have to do it. You have to keep tabs.”
If you see something you did not authorize, you should call your broker and send a written complaint to the firm. You should also notify the appropriate securities regulator.
Investors should also do periodic checks of securities they own to see that the prices match up with what appears on their statements, Walsh suggested.
If a promise sounds too good to be true, chances are it is. That particularly goes for offers that require you to act immediately, or success rates that are too good.
“If someone offers you a guaranteed high rate of return, they’re lying,” said Donley. “You’re probably looking at a fraud.”
Sales pitches that lead you to believe that the offer is only available for a limited time or restricted to a special group of people should also be a red flag.
And watch for any information that comes with free offers, such as educational seminars that provide lunch or mail offers that include trinkets. Those will make you more likely to respond.
“You have a tendency to believe this person and trust this person,” Walsh said. “The one thing we always say about free meals is you don’t have to bite on what’s being offered.”
If you have any doubt about an investment, check into it before you put your money in.
“The criminals spend the money, so even when we nail them, the money’s often gone,” said Donley.
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