Investing Crossword Puzzles: Red Flags for Investor Fraud

Investments can be both fun and financially lucrative. However, it’s important to remain diligent. Brokers may expose themselves to conflicts of interest, some legal and some illegal. It’s not only the investor but also the broker, adviser, and member firm which stand to profit off of the investor’s hard-earned money. Be wary of brokers who make unqualified guarantees. All investments have some inherent risk. Investors should be skeptical about brokers who make performance guarantees about investment products.

Additionally, you want to avoid placing money in an unregistered product. Many investment scams involve unlicensed individuals selling securities that are not registered on the federal or state level. These unregistered securities can include stocks, bonds, notes, hedge funds, oil or gas deals, and fictitious instruments, such as prime bank investments. A broker may prey on an investor’s ignorance by telling them point blank that the investment is an unregistered product. If this happens, run! Also, consider reporting the broker to the SEC or FINRA. If he or she doesn’t tell you point blank, they may try to trick you by saying the product is registered in another state or the product is pending registration. Never be afraid to follow up with questions or contact the SEC or FINRA directly.

If your investment shows consistently increasing returns, or shows shockingly consistent returns regardless of market conditions—especially in turbulent times, it might be promising overly consistent returns. Every investment, even the most stable investment in the world, will experience down periods.

Avoid anyone who credits a highly complex investment strategy for unusual success. An investment professional worth his salt should be able to explain his investment methods to you clearly. There are certain pieces of information that you should know about any investment that you are seriously considering, including what it is, what the risks are, and how the investment makes money. If your investment professional brushes off your questions about these pieces of information, keep pressing him. No investment is too complex for the layman investor to understand.

Registered securities must provide documentation to the SEC. If your investment has missing documentation, you may be involved in an unregistered security. There should be a “prospectus” in the case of a stock or mutual fund, or an “offer circular” in the case of a bond. These are REQUIRED for legitimate investments.

Review your statements for account discrepancies. These include unauthorized trades, missing funds or other problems with your account statements. These could be a result of a legitimate error, or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets.

Last, but certainly not least, be wary of pushy sales people. A legitimate investment professional should not push you to make hasty decisions with your money, or tell you that you’ve got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate.

Red Flags for Fraud

Across
3. An investment scam involving unlicensed individuals selling unregistered securities—ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments. (2 Words)
5. Be suspect of anyone who gives  _________ that an investment will perform a certain way. All investments carry some degree of risk.
6. Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error—or they could indicate churning or fraud, so you should watch for these. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets. (2 Words)
7. No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now,” unlike these people. If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate. (3 Words)
Down  
1. A potential sign that a person is selling unregistered securities, where someone tries to sell you a security with no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond. (2 Words)  
2. Any investment that consistently goes up month after month—regardless of market conditions—provides these.

(3 Words)

 
4. Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you’re seriously considering—including what it is, what the risks are and how the investment makes money. (2 Words)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.