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How Not to be a Victim of Investment Fraud

By Anne Kates Smith
Kiplinger’s Personal Finance

Americans lose an estimated $50 billion a year to financial scams. And if you’re a victim, you can count on one thing: Restitution orders or no, it’s rare that swindled investors get their money back. Making matters worse, fraud takes an emotional toll. Half of victims report severe stress and more than one-third cite 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.”

The best way to prevent losses is to avoid being duped in the first place. Here are four tips to spotting a scam: 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.

Resist pressure. Con artists exert social pressure by claiming that other savvy investorswhether 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 www.conemifyoucan.org.

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 https://brokercheck.finra.org. If you’re working with an adviser, check out https://adviserinfo.sec.gov 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 www.nasaa.org, 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 www.nfa.futures.org/basicnet.

Research the pitch. Use the SEC’s Edgar database to research securities (www.sec.gov/edgar.shtml), or check them out with your state regulator.

Editor’s Note: Anne Kates Smith is executive editor at Kiplinger’s Personal Finance magazine. Kiplinger.com. .


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