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Investment fraud comes in a variety of disguises. There are ponzis and pyramids, pump and dump stock scams, forex frauds, fake promissory notes, prime bank cons and precious metals schemes, and more. But there are certain words and phrases that occur again and again in all these frauds.
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When you consider any investment, watch out for these warning signs:
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INSIDE INFORMATION: The promoter claims to have inside or non-public information that he's willing to let you in on, but you need to keep it confidential. Trading on non-public information about a publicly-traded stock is a violation of federal securities law. Even if the info is legitimate, do you want to be party to a crime?
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SECRET METHODS, BREAKTHROUGH TECHNOLOGY: He's trying to get you to act without getting an outside opinion or checking his story with the authorities.
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ACT NOW or LOSE OUT: he's trying to get you to make a snap decision without thinking it through and seeing the holes in his story. If it’s a good investment, it will still be there after you've checked the promoter's credentials and done your own research on the offering.
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RISK-FREE or GUARANTEED RETURNS: should also ring alarm bells. There is no "risk free" investment. Remember the iron law of investing: risk and return are inseparably linked - the higher the return, the more risk you’re taking. Low risk with high returns does not compute.
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DON'T TELL ANY ONE: If the promoter urges you to keep the investment confidential, even from your family, he's afraid of what their questions may uncover.
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ABOVE MARKET RETURNS: If you are promised higher profits than comparable investments, there's something you're not being told about the deal.
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YOUR PASTOR (or MINISTER, or LOCAL BANKER) HAS ALREADY INVESTED: Con artists may try to convince you to invest because others you know and respect are participating. Remember, in a ponzi scheme earlier investors may appear to make money at first, but it's only cash flowing through the con from newer victims. Ultimately, everybody loses.
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LIMITED to a FEW SELECT INVESTORS: The promoter may be attempting to evade securities regulations by limiting the pool of investors so he is not subject to federal or state disclosure requirements. Or he may be trying to stampede you into making an unwise decision.
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Here's a list of questions to ask before you make any investment decision
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What risks are involved? Don't be dazzled by the prospect of making big
money on your investment. Ask about what can go wrong. What's the risk you'll
lose some or all your money?
Can I get a detailed explanation of this investment in writing? Don't rely on
verbal promises or vague explanations. Get a clear, detailed description of your
investment in writing, and make sure you understand the offering before you
invest.
Are you licensed to sell securities in the state of New Mexico? Individuals
who sell securities or provide investment advice are required to earn a license
by passing rigorous examinations before they can offer their services to the
public. Those who bypass this requirement often are predators offering bogus
investments.
Is this investment offering registered with the SEC or the NM Securities
Division? The law requires that investments offered to the public in New Mexico
must be reviewed by either state or federal regulators.
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