By David Hsu, Fall 2016 Student Intern
Over the summer, the SEC updated their investor alert for seniors entitled: Five Red Flags of Investment Fraud. It highlighted five important things seniors should take care to look for to identify potentially fraudulent investments.
- Unregistered and Unlicensed Sellers
There are three main avenues to ensure that the person offering to sell you a security is licensed and registered. First, you can use the free online database found here to search for the investment professional. Second, you can contact your state securities regulator. In Georgia, that would be the Georgia Secretary of State. Finally, you can call the SEC’s Office of Investor Education and Advocacy at (800) 732-0330. They are open 9:00 a.m. to 5:30 p.m. EST Monday through Friday.
- Promises of High Returns with Little or No Risk
The old adage of “if it sounds too good to be true, it probably is” applies here. Anyone making these promises should be viewed with skepticism, and is this is a classic sign of investment fraud.
- Pressure to Buy Quickly
No reputable broker will ask you to make an investment decision without proper research. If someone states that you must “act now” to take advantage of an investment, this should raise a red flag and one should walk away.
- Free Meals
Most free meal investment seminars come with a hard sell sales pitch, either during the lunch, or in subsequent contacts. They are designed to sell products as opposed to educate investors. If you decide to attend one, commit to not buying anything during the seminar until you’ve had time to do your own independent research.
- Red Flags in the Investment Professional’s Background
The SEC, FINRA, and each state maintains records of each investment professional, and looking into a professional’s background, even if they are in good standing, is important. The SEC describes factors that indicate potential problems include: (1) employment at firms that have been expelled from the securities industry; (2) personal bankruptcy; (3) termination; (4) being subject to internal review by an employer; (5) a high number of customer complaints; (6) failed industry qualification examinations; (7) federal tax liens; and (8) repeatedly moving firms.
Anyone who has questions about any broker or investment should look to the SEC as a resource. Their Office of Investor Education and Advocacy exists to provide investors with information to make educated investment decisions. They can be contacted by phone at (800) 732-0330 as well as online here.