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10 tips to avoid investment scams

Sept. 24, 2010 at 4:24 a.m.


Although schemers like Bernie Madoff have brought to light Ponzi schemes and other scams prevalent in the financial world, avoiding them can prove difficult if you don't know what you're looking for.

1. Be aware that older people are typically the target of scams because they are usually more trusting of strangers, they are usually home during the day, and usually home alone.

2. "RISK." Risk usually is not mentioned or is downplayed. This should be an immediate red flag for any investor.

3. The use of fear and/or intimidation. This often includes the threat that your financial situation may be harmed if you don't take the immediate action as requested by the perpetrator.

4. Scams often involve a "limited-time offer." You should always say "No" to any person who tries to pressure you to make an immediate investment decision.

5. Fraudsters will tell you that "you are guaranteed to make money" or "guarantee that you can't lose money." These should be red flags.

6. Scams often promise high returns. If it sounds too good to be true, then it probably is.

7. Fraudsters will do more talking than listening. Each investor has unique and different financial situations. If a sales person is not interested in learning about your needs, he or she is not looking out for your best interest.

8. Fraudsters will ask for cash or checks made in their name. Use checks when depositing funds into an investment account, made payable to the brokerage firm or the clearing firm, if applicable.

9. Never give key personal information to strangers. This includes Social Security cards and numbers, passports and government-issued identification, a list of your financial institutions and your financial representatives, your account numbers for investment, bank, and credit card accounts, current account statements, any proof of financial and property records.

10. Before investing with someone, make sure he or she is with a reputable financial firm, that he or she is licensed in your state or with the appropriate regulatory body. You can check with the Financial Industry Regulatory Authority Inc. to determine if an individual is properly registered and if there have been any complaints or disciplinary problems involving the individual or his or her firm. You can contact FINRA at www.finra.org or by phone at (800)289-9999.

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