Recently, the Securities and Exchange Commission published its “10 Red Flags That an Unregistered Offering May Be a Scam” Most investors do not realize that each and every investment out there must be registered with the SEC or offered through a registration exemption to be legally sold to investors. Yet, billions of dollars are continually pumped into fraudulent and unregistered offerings. The SEC published these top 10 red flags that every investor should be on the look out for.
- Claims of High Returns with Little or No Risk – A classic red flag that high returns are around the corner with little or no risk. Every investment carries some degree of risk, and if your advisor can’t point that out to you, then you need to find another broker.
- Unregistered Investment Professionals – Unregistered persons who sell securities perpetrate securities frauds. These individuals are neither trained nor legally qualified to trade or recommend securities. Check whether the person offering to sell you an investment is registered the Investment Adviser Public Disclosure website and FINRA’s BrokerCheck.
- Aggressive Sales Tactics – No investment is a “once-in-a-lifetime” opportunity. If taken you are likely to be quickly departed from your money. Thoroughly investigate any security recommended before signing any agreements and if there isn’t enough time then it wasn’t meant to be.
- Problems with Sales Documents – It’s a great opportunity but I just can’t put it into writing. Legitimate private placement offerings will be accompanied by a private placement memorandum, so ask for one. Don’t be fooled by often used scam offering documents that contain a couple of pages of vague terms, contain typographical, spelling, or other strange language.
- No Net Worth or Income Requirements – Private securities offerings are limited to accredited investors who typically have a net worth over $1 million – excluding the value of the person’s primary residence. If you don’t have $1 million or the broker does not ask you about your net worth, run away from this investment with all due haste.
- No One Else Seems to be Involved – Deals run by the only contact you have without the involvement of brokerage firms, accountants, law firms, or other third parties are an investment no-no to avoid.
- Sham or Virtual Offices – P.O. boxes, fake addresses, and one man shops are not the businesses you want to trust with significant life savings.
- Not in Good Standing – Each state, usually under the Secretary of State, maintains a publicly accessible online database of companies registered. If you can’t find the limited partnership or corporation being offered now you certainly won’t be able to locate your funds years from now.
- Unsolicited Investment Offers – Fraudsters prey on the trust and friendship of communities, ethnic, religious groups, or any other group of people that have something in common. Be wary of unsolicited advice stemming from these sources.
- Suspicious or Unverifiable Biographies of Managers or Promoters – Nothing beats success like manufactured success. To appear legitimate, fraudsters will represent a successful career. Sometimes these people have even been barred from the industry they claim to succeed at. Don’t take the promoter’s word for it. Verify any claim.
The attorneys at Gana Weinstein LLP represent investors in securities arbitration matters concerning a variety of investment related claims. Our consultations are free of charge and the firm is only compensated if you recover.