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What are some red flags for investment fraud?

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Quick Answer

An investment opportunity that sounds too good to be true, promises of guaranteed returns, pressure to send money right away and reciprocal offers are red flags indicating potential investment fraud, advises Investor.gov. Potential investors should always fully research investment opportunities and the people offering the investments.

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Full Answer

People who engage in investment fraud often play down the amount of risk involved in an investment, notes Investor.gov. Use of terms like "incredible gains" or "breakout stock pick" is a sign that the investments are actually very high in risk or outright frauds. An offer of high guaranteed returns is also a red flag for investment fraud, as high returns are directly related to high risks, while low returns carry smaller risks.

People who commit investment fraud often pressure people to send money right away before an opportunity is missed, states Investor.gov. Scam artists also make reciprocal offers, such as free seminars, to lure investors into making purchases right away. People should wait before committing their money in order to fully investigate the investment itself, fees, and the qualifications and claims of the person selling the investment. People who suspect investment fraud should contact the Securities and Exchange Commission, the Financial Industry Regulatory Authority or a local securities enforcement agency.

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