Stories & Features


4 Steps to Avoiding Investment Scams

Chances are, you may have been swindled at some point in your life, or you know someone who has. Nearly half of consumers surveyed recently by Stanford University's Center on Longevity and the Finra Investor Education Foundation reported being a victim of financial fraud in the previous year--a far higher tally than earlier surveys indicated. No socioeconomic or demographic group is immune. "Men and women, college students and retirees, rich and poor--all are potential targets," the report's authors found. Nearly 40% of victims never told anyone about the fraud.

See Also: Things You Should Never Keep in Your Wallet

Estimates are problematic, but Americans are thought to lose some $50 billion a year to financial scams. And there are indirect costs: bounced checks, late fees, trouble meeting monthly expenses and even bankruptcy. So it's not surprising that the emotional cost of fraud is also high, with 50% of victims reporting severe stress and more than one-third citing depression. The toll is compounded for senior victims, who have little time to make up for lost resources. "When elderly people lose their life savings, they lose hope," says Ricky Locklar, an investment fraud investigator at the Alabama Securities Commission. "To me, those crimes are worse than someone robbing the corner drugstore at gunpoint."

Here are four steps investors should take to protect themselves:

1. Recognize the art of the con. Scammers succeed with financially sophisticated victims because investment fraud is a crime of persuasion. Be wary of high-yield, low-risk offers, as well as anything with a guarantee. Question anyone who claims a special credential, experience or affiliation to gain credibility.

2. Resist pressure. Con artists exert social pressure by claiming that other savvy investors­--whether celebrities or members of your church--are already on board. Don't be swayed by small favors, such as a cut-rate commission or a free meal, and don't be rushed by claims of limited supply designed to create a false sense of urgency. Learn about persuasion tactics by playing Finra's interactive "Con 'Em If You Can" game at

3. Do a background check. You can find information about registered securities firms and brokers, including employment history, licensing status, criminal events, investor complaints and pending investigations, at If you're working with an adviser, check out for information about a firm and key personnel, including certain disciplinary actions. You can also search for an individual to view that person's professional background and conduct. At, you'll find your state securities regulator, through which you can access extensive employment, disciplinary and registration information about a broker or investment adviser. Check out commodities, futures or foreign exchange dealers at

4. Research the pitch. Use the SEC's Edgar database to research securities (, or check them out with your state regulator.

See Also: 7 Smart Moves to Prevent Identity Theft


Copyright 2017 The Kiplinger Washington Editors

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