Avoiding Investment Fraud

Get an 80 percent return on your investment! Double your money in six months! No risk – guaranteed! These are some of the enticing claims that are thrown at potential investors each day, and if they sound too good to be true,that's because they probably are.

Anne Osmer Reporting

Get an 80 percent return on your investment!  Double your money in six months!  No risk – guaranteed!  These are some of the enticing claims that are thrown at potential investors each day, and if they sound too good to be true, that's because they probably are.

Consider this:

Mary Brown was 65 and had just retired when an investment firm broker contacted her.  He was polite, knowledgeable, and convinced Mary that within one year, she could make 20 percent on an investment of $50,000 by purchasing shares in a burgeoning Internet access company.  The broker told Mary it was critical she get in on the investment early, and that she needed to make a decision quickly.  He sent her several brochures by overnight night mail that explained the investment in further detail. 

Although she felt pressured, Mary felt she could not turn up such a great opportunity.  Mary transferred the $50,000 from her retirement account to the account specified by the broker.  A month later, she called the broker to see how much money she had made, only to find that the phone number was disconnected.  After some investigating she was horrified to learn that the investment firm did not exist.  She had been scammed.  Mary was out $50,000, a good chunk of her retirement money.

The above account is fictional, but unfortunately it is all too real for thousands of investors each year.  Buyer beware: There are unscrupulous people out there just waiting to get their hands on your money.

How Can You Protect Yourself Against Investment Scams? 

First of all, listen to your gut.  If someone is trying to convince you to invest in something and you don't feel comfortable about it, be cautious.  Don't proceed with any investment until you've done your homework.  Remember: If an investment opportunity sounds unbelievable, it probably is.

Make sure the company you're investing with is reputable.  Check the NASD "BrokerCheck" database to see if your investment firm or broker is a member.  Under federal law, almost every securities firm doing business with the U.S. public is a member of NASD.

Also check with the U.S. Securities and Exchange Commission.  Many large U.S. public companies by law must register with the SEC and provide annual reports.  Find these on the EDGAR database. For smaller companies and those not required to register, contact the SEC at (202) 551- 8090 to see if the company has filed an offering circular (under Regulation A or Form D).  If it hasn't, make sure you are prepared to closely investigate the investment – this can take some effort.  See the Internet Fraud" pages of the SEC for more information on vetting out investments offered by unregistered companies.

If you are still unsure about your potential investment, have specific questions, or you think it may be a scam, in Michigan you can call the Office of Financial and Insurance Services at (877) 999-6442.

It may take some work to be a smart investor, but it's well worth the investment.  Guaranteed.