Investment fraud is a serious problem. Fortunately, it is also something that anybody can help to combat. The better-educated investors are about what investment fraud is and how to combat it, the safer everyone is from these types of scams.
What is investment fraud? Investment fraud is a type of fraud that occurs when someone is convinced to make an investment under false pretenses. Preventing investment fraud relies on investors being able to watch out for and avoid the most common types of investor fraud.
Here are some of the simplest ways of preventing investment fraud.
How to Protect Yourself from Investment Fraud
There are ways to protect yourself from investment fraud scams and swindles. Here are some of the most effective ways to do it.
1. Ask questions
Fraudsters rely on people not doing their due diligence in order to be able to run scams and defraud investors. You can do a great deal to combat investment fraud just by making sure that you ask the right questions when you are making an investment. Make sure that you do independent research; fraudsters can easily falsify references and similar indicators of legitimacy.
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Asking your own questions and doing your own research will enable you to root out any fraudsters quickly and avoid getting into business with them, to begin with.
2. Research before you invest
You should never go into business with anyone solely on the basis of information that they have given you. It is far too easy to scammers and fraudsters to present you with fake records and to lie to you. Make sure that you completely understand any business or product before you make a final decision on whether to invest or not.
You can use the SEC’s EDGAR filing system to look up any company’s financial statement. You should do this for any business that you are thinking about investing in so that you can conduct your own audit.
3. Check out the salesperson
You should always make extra sure that you carefully check out the salesperson who actually offers the investment to you. Do they seem legitimate or have offbeat tendencies during the conversation? Go with your gut — even if you know this person in another context, you should still assume that they are a scammer and not think otherwise until you have proven to yourself that they are legit. If you don’t do your due diligence now, your business will be exposed to greater losses later on.
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Make sure that whoever contacts you about selling securities has the appropriate license to do so in the state that they are operating in. You should also look for any evidence of run-ins with the regulators that they might have had.
4. Be suspicious of unsolicited offers
You should always be extra careful when you are dealing with an unsolicited offer. Ask yourself why the offer is being presented to you.
An unsolicited offer is not necessarily illegitimate, but the majority of scams will take the form of unsolicited offers and so they should always be scrutinized.
The bottom line
There are numerous different types of investment fraud; some are very sophisticated, and others are designed to get quick money out of greedy people. Don’t let your desire to make money blind you to an offer that seems too good to be true.
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