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Knowledge, attention to detail and a healthy sense of skepticism are a triple threat to fight investment fraud. The information below can help you avoid investor fraud.
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Investor Traps - Practices
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AFFINITY FRAUD: Because we tend to trust others who share our interests and affiliations, financial predators often associate themselves with church, civic or social groups, using the group’s reputation to convince potential investors that a fraudulent investment is legitimate. Always exercise the same care in researching an investment, regardless of the promoter’s connections.
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UNDISCLOSED CONFLICT of INTEREST: When seeking financial guidance, investors need to remember that not all advice is necessarily in their best interests. An unscrupulous salesperson may steer clients into a particular investment product without revealing that the salesperson stands to gain a fat commission on the deal. Demand that anyone recommending a particular investment reveal how he or she is to be compensated for the service.
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PRIVATE or SPECIAL DEALS: Fraudulent investments are often promoted as “limited” opportunities offered confidentially to a few select clients. Although a legitimate investment may legally be packaged this way, investors need to be especially skeptical of any offering where the promoter asks you to keep the deal secret.
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Investor Traps - Products
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OIL & GAS SCHEMES: Fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors.
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PROMISSORY NOTES: are IOUs issued by businesses that need to borrow money for short periods of time. It’s not an investment fraud as long as the borrower discloses all the risks, and provides you with the information you need to make an informed decision. But if the borrower is offering a higher than market rate of return – often 15, 20 percent or more – you have to ask yourself why they need the money that badly. Promissory notes become outright frauds when they are issued by little known or non-existent companies and promoted by salespeople promising high returns with little or no risk.
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PRIME BANK SCHEMES: In these scams the promoter offers a ‘risk free’ opportunity to earn high returns by investing in the global financial markets . The investment is often presented as a secret strategy shared only by the very wealthy. In fact, the ‘major world bank’ may be no more than a fancy letterhead or a fake web page.
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FOREIGN EXCHANGE TRADING SCHEMES: Currency trading and foreign exchange (FOREX) trading schemes require extensive resources. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made.
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GOLD and PRECIOUS METALS: High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain purchased gold in a secure vault and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist.
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GREEN SCHEMES: Investment opportunities tied to the development of new energy-efficient technologies are increasingly popular with con artists. Scammers also exploit headlines to cash in on unsuspecting investors.
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Avoiding Fraud
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Independently verify any investment opportunity as well as the background of the person and company offering the investment.
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Do business only with licensed brokers and financial advisers and report any suspicion of investment fraud to the New Mexico Securities Division at 800-704-5533. One call can protect your financial security and might prevent others from becoming victims.
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