If you get an unexpected call or email from someone you don’t know offering you something that sounds too good to be true, you’re probably being prepped for a scam. Read on to recognize the different types of scams and what you can do to avoid them.
Here we tackle three fraud types that have surfaced in recent months.
Advance fee fraud
In this scheme, you’re asked to pay money in anticipation of receiving something of greater value. Chances are, after you’ve sent the money you’ll never see it again. Advance fee scams can involve the sale of products or services, an offer of investments with extremely attractive returns, lottery winnings, gifts, or any other windfall. One version of this type of scam might begin with a phone call offering to pay the investor an enticingly high price for shares of the investor’s stocks that are virtually worthless (sometimes referred to as “non-performing”). To reel you in and make the whole thing look legit, you’re referred to a phony web site containing investor protection information, or one posing as a legitimate securities professional or regulator.
To protect yourself against advance fee fraud, FINRA advises:
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Ask how they got your contact details. If they say it’s from a shareholder list, ask for the company that made the list and the contact information of that company. If they refuse this request, hang up. They probably got your details through dubious means.
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Premiums too good to be true. If the caller offers you more money for shares of stock than the current value at which the stock is trading, assume you are being scammed and hang up.
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Be wary of advance fee. If you are asked to pay a “penalty restriction fee” or fee to “release restricted shares,” or if you are asked to pay for a “performance bond” or send an “equity evaluation deposit,” assume you are being scammed and hang up.
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Check the firm license. Verify that the firm is licensed to do business in the country where the firm or broker is located. If the firm is located in the United States, use FINRA BrokerCheck to check the status of a broker or brokerage firm. If the firm is not listed in BrokerCheck, chances are it is fraudulent.
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Do BrokerCheck verification. It’s possible that the caller may be impersonating an actual broker or firm, so as an extra precaution, use the contact information in FINRA BrokerCheck—not information given to you by the caller—to contact the broker or firm yourself.
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Avoid scam websites. Don’t go to websites recommended by cold callers—they may not only provide deceptive information, but may track your visit and get your personal information for future scams.
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Check with regulators and banks before sending out money. They may be able to help spot frauds better.
Chinese stock scams
Economic growth in China has fired up U.S. investors to chase after the next hot Chinese stock — only to find themselves victims of scams. Although their stocks are traded in the US with business operations supposedly based in China, some of the companies being touted all too often have no actual connection to China’s stock markets. The fact that a company has “China” in its name can be misleading. The company might not be incorporated or based in China at all, and it may be very difficult to assess how much, if any, business the company actually derives from China.
What’s compounding the whole problem is that these companies are difficult to audit financially and you might be fed wrong information on their performance because efforts to inspect Chinese auditing firms have met resistance from Chinese authorities. A basic issue is that in the case of all companies listed in the United States, the SEC insists it should have access to auditing documents worldwide. Meanwhile Beijing insists with equal vehemence that Chinese auditors, including those working for affiliates of the big international firms, should not cooperate with disclosure requirements of foreign regulators.
To protect yourself against Chinese stock scams, FINRA advises:
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Investigate before you invest. Talk is cheap, it’s easy to make outlandish claims. Never rely solely on information you receive in an unsolicited fax or email.
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Always ask: “Why me?” It’s one sure tip-off that you’re potentially being scammed when the message is unsolicited. It raises the obvious question: Why would a total stranger send you an email about a really great investment opportunity?
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Read a company’s SEC filings, if available. Most actively traded public companies file financial reports with the SEC. Check the SEC’s EDGAR database to find out whether the company files documents with the SEC.
Early retirement investment scams
Baby boomers nearing retirement and their parents are easy targets for this scam. With roughly $16 billion in retirement funds swirling around in the market, this area is ripe for the picking by unscrupulous individuals. Retirees are vulnerable because they’re looking for ways to stretch their income. Plus, many seniors are afraid to ask questions, consult with their children or complain to regulators. The scam, usually starting as an invitation to a retirement seminar, covers the whole gamut of investments from oil wells (because they take decades to dry up) to strip clubs (sex sells!). What’s more, they use proven marketing tactics that’s used by legitimate investments, as well. Like citing credible sources for example, or social consensus (everyone’s doing it), reciprocity (half of the commission if you buy now), and scarcity (only a few units left, so hurry).
To protect yourself against early retirement investment scams, be on guard for these red flags published by the Securities and Exchange Commission:
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Guarantees. All investments carry some degree of risk, and can’t be guaranteed to perform in a certain way.
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Unregistered products. Many investment scams involve unlicensed individuals selling unregistered securities. Always check them out with regulators and against official databases.
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Overly consistent returns. Even the most stable investments can experience downturns once in a while. Be wary of any investment that promises consistent performance.
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Complex strategies. 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. If your questions get answers in the neighborhood of “it’s complicated,” it’s a good time to rise from your chair and leave the seminar.
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Missing documentation. If someone tries to sell you a security with no documentation—that is, no mutual fund prospectus or offering circular for bonds—you’re probably being sold unregistered securities.
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Account discrepancies. 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. 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. It can be easier for fraud to occur if an adviser is also the custodian of the assets and keeper of the accounts.
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A pushy salesperson. 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.
There always was and always will be fraudsters, and this proverb will always ring true for all eternity: “A fool and his money are soon parted.” You worked hard for your money. Don’t let someone trick you out of it. Chances are you might never get it back.
Have you ever been scammed, or know of someone who was?
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