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Do you think only the gullible can fall victim to financial scams? Consider this: Mitch Anthony, a respected consultant to financial advisors, recently admitted to losing nearly $1 million to a con artist who sold him a worthless real estate investment. His mother lost her life savings to the same man.1
Financial fraud is widespread. In a survey by the Financial Industry Regulatory Authority (FINRA), eight to ten respondents reported having been solicited for a potentially fraudulent offer. Eleven percent reported losing money after engaging with the offer.2 In the most common scheme, imposters claiming to be from the Social Security Administration, IRS or other government agency convince victims to turn over money or personal information, according to the U.S. Federal Trade Commission.3
Investment fraud is a subset of financial fraud in which the victims are more likely to be older, wealthy and male, according to a study by the AARP Foundation. They’re also more likely to be well educated and to be accustomed to taking risks with their money.4
The U.S. Securities and Exchange Commission (SEC) has identified 15 common types of investment fraud.5 For example:
Scammers have developed well-honed techniques for building investors’ trust and then preying on their fear or greed. Here are some of the warning signs that you may be dealing with a crook, according to the New York attorney general and other sources6:
Exorbitant promises: Are the returns on your investment astronomically high? Are they “guaranteed” to stay high, year after year? If an investment sounds too good to be true, it probably is.
Claims of no or minimal risk: Most legitimate investments are founded upon ventures that involve some risk. Legitimate low-risk investments typically offer low rates of return. If someone is promising you a low- or no-risk investment with very high returns, you might be talking with a scammer.
Complex investments: Some fraudsters will claim to use complicated strategies that the average person can’t understand. “But these supposedly complex schemes are usually pretty simple: They’ll take your money and run,” warns the New York attorney general.
High-pressure sales tactics: Was the person’s call unsolicited? Are they saying a deal is “only good for today”? Are you being pressured to send money by wire, or to hand a check over to a courier? Any legitimate investment advisor should give you the time you need to research the investment—and the advisor’s credentials. Visit investor.gov to check if an advisor is licensed to sell securities or has faced disciplinary action.
Financial fraud can be devastating. If you’re a victim, don’t be embarrassed, says the FBI. Instead, “report the crime promptly—you’ll have a better chance of getting your money back if you do.” The federal statute of limitations on financial crimes is only five years.
An Investment Fraud Victim Recovery Checklist by FINRA outlines steps for victims to take, including documenting the details of the fraud, notifying regulators and law enforcement and possibly filing a civil lawsuit. When the SEC prosecutes a scammer, it may set up a fund or receivership for reimbursing the victims.
You may never be able to recover the money you lost to a fraudster, the SEC warns. If you do, the recovery may be only a fraction of what you invested. But by taking swift action, you might recover more and save others from falling into the same trap.