How to Protect Your Investment Money from Scams

Are you a senior with savings, or do you own your home or other property? It’s crucial to be aware of scammers targeting older adults to steal their money through deception. Investment scams can have devastating and long-lasting effects. This guide from money-central.com aims to educate seniors, their families, and caretakers about common investment scams, how to prevent them, and what to do if you become a victim.

Understanding Investment Fraud

Investment fraud occurs when individuals attempt to trick you into investing money. This can involve various assets like stocks, bonds, commodities, currency, or real estate. Scammers may provide false information about legitimate investments or fabricate investment opportunities entirely.

These fraudsters often pose as telemarketers or financial advisors, appearing intelligent, friendly, and trustworthy. They might create a sense of urgency to pressure you into investing quickly, aiming to gain your trust and secure your money before you ask questions.

Common Investment Scams to Watch Out For

• Affinity Fraud: Scammers exploit groups based on shared characteristics like age, ethnicity, or religion. They infiltrate these groups, appearing as fellow members to gain trust from leaders and individuals. Once trust is established, they promote fraudulent investments, relying on the group’s cohesion to encourage others to invest.

• High Yield Investment Programs (HYIPs): These scams promise exceptionally high returns with minimal risk. Scammers guarantee profits, often claiming access to exclusive, lucrative markets. In reality, these “investments” are either non-existent or involve worthless stocks, designed to quickly enrich the scammer while leaving investors with losses.

• Pyramid Schemes: Pyramid schemes lure participants with promises of high profits from a small initial investment. However, the returns are contingent on recruiting new investors. Early participants are paid with money from later recruits, creating an illusion of profitability. The scheme collapses when recruitment slows, leaving most participants with losses, except for those at the very top.

• Ponzi Schemes: Similar to pyramid schemes, Ponzi schemes involve scammers, often portfolio managers, who promise high returns by investing your money. However, instead of genuine investment, early investors are paid with funds from new investors. This creates a false sense of success and attracts more victims. The scheme inevitably fails when new investments dry up, and the scammer is unable to pay promised returns.

• Pump and Dump: In this stock manipulation scam, fraudsters buy cheap, low-value stocks (“penny stocks”). They then spread false and misleading positive information about these stocks to create artificial demand and inflate the price (“pump”). Unsuspecting investors, believing the hype, buy the stock at inflated prices. Once the price is high enough, the scammers sell their shares (“dump”), making a profit while the stock price crashes, leaving other investors with significant losses.

• Recovery Room Schemes: These scams prey on victims of previous investment fraud. Scammers contact individuals who have already lost money, offering to recover their lost funds for an upfront fee. They falsely claim to have special connections or strategies to recoup losses. After receiving payment, they disappear without providing any recovery services.

• Unsuitable Financial Products: Unscrupulous financial advisors may push products that generate high commissions for them but are not suitable for your financial situation or goals. Products like complex annuities might be misrepresented, with advisors downplaying fees, surrender charges, or the long time horizons needed to see returns. Furthermore, some advisors may bill for services never rendered or products never requested.

Red Flags: Signs of Investment Fraud

• Guaranteed High Returns: Be skeptical of any investment promising consistently high returns with little to no risk. Legitimate investments carry risk, and promises that sound “too good to be true” usually are.
• Unlicensed Sellers: In Tennessee and other states, individuals selling securities must be licensed. Unlicensed sellers are a major red flag.
• Unregistered Securities: Securities offered to the public generally need to be registered with regulatory bodies. Unregistered securities can indicate a scam.
• Personalized “Expertise”: Be wary of individuals who claim to deeply understand your retirement or investment needs without a thorough, professional assessment.
• Lack of Transparency: Legitimate investments come with proper documentation. Stocks and mutual funds require a prospectus, and bonds need a circular. Absence of this paperwork is a warning sign.
• High-Pressure Sales Tactics: Aggressive salespeople who demand immediate decisions, money, or signatures are often indicative of a scam. Legitimate advisors allow you time to consider and research.

How to Safeguard Your Investment Money

• Verify Broker Credentials: Utilize resources like www.BrokerCheck.finra.org to check if a broker is licensed and if there are any complaints against them.
• Conduct Thorough Research: Before investing, thoroughly research any investment opportunity. Request written information and use the SEC’s EDGAR database (www.sec.gov/edgar/searchedgar/webusers.htm) to investigate investments and investment companies.
• Investigate the Salesperson and Company: Obtain the salesperson’s name and company details. Research both the salesperson and the company before committing to any investment.
• Exercise Caution with “Senior Specialists”: Be particularly diligent with individuals or firms claiming “senior certification” or presenting themselves as retirement consultants. Verify their credentials and claims independently.
• Seek Expert Advice: If you have any doubts or questions about an investment, contact the Tennessee Securities Division’s Registration Section at (615) 741-3187 or your state securities regulator for guidance.

What To Do If You Suspect You’re a Victim

If you believe you have been targeted by an investment scam, immediate action is crucial:

• Document Everything: Create a detailed record of events, including:

  • Company name
  • Names of individuals you spoke with
  • Contact information (phone numbers, websites)
  • Investment details (registration numbers, if any)
  • Timeline of interactions
  • Police report (if filed)
  • Credit reports from all three major credit bureaus
  • Notes from phone conversations
  • Any other relevant documentation

• Report the Fraud: Report the scam to the appropriate authorities. This includes:

  • The Securities and Exchange Commission (SEC)
  • The Commodity Futures Trading Commission (CFTC) if the scam involves commodities or futures
  • Your state securities regulator
  • The Federal Bureau of Investigation (FBI)
  • The Federal Trade Commission (FTC)

Resources to Help

For further information on financial professionals and recognizing investment fraud, consult these resources:

• Financial Industry Regulatory Authority (FINRA): www.finra.org
• U.S. Securities and Exchange Commission (SEC): www.sec.gov
• Commodity Futures Trading Commission (CFTC): www.cftc.gov
• Federal Trade Commission (FTC): www.ftc.gov
• Your State Securities Regulator: Contact information can be found on the NASAA website: www.nasaa.org

Protecting your investment money requires vigilance and knowledge. By understanding common scam tactics and taking preventative steps, you can significantly reduce your risk of becoming a victim of investment fraud. If you suspect a scam, remember to document everything and report it immediately to the appropriate authorities.