| | Fraudulent investment companies, swindlers calling, white collar crime. Big stories in these days. It is good to know about swindlers to avoid loosing money by investment frod. Recognize early warnings, recognize tricky swindlers who come up with scams. Some phoney fraudsters sound so serious. Check out this report, it can help.
Investment Swindles: How They Work and How to Avoid Them Including 16 questions that can turn off an investment crook
16 Questions That Can Turn Off an Investment Swindler
The first line of defense against investment fraud is your inalienable right to ask questions and--until you get the right answers--to say "No." And mean no. Not surprisingly, this is usually an investment swindler's first point of attack. To keep you from asking questions, he asks them! Invariably, the questions have "yes" answers, such as "You would at least be interested in hearing about such a fantastic investment opportunity, wouldn't you?" or "You would like to make a large amount of money in a short period of time with little or no risk, right?"
One difference between a reputable investment firm and a
swindler is that reputable firms encourage you to ask
questions, to obtain as much information as possible, to
clearly understand the risks involved, and to be entirely
comfortable with any investment decision you make. The only
thing a swindler wants is your money These are some of the
questions that swindlers don't like to hear:
- Where did you get my name?
If the response is that you were chosen from a "select list
of intelligent and prudent investors," that select list may be
the telephone directory, or a purchased list of persons who've
bought certain types of books, subscribed to particular
magazines, or responded to newspaper ads. If you have made
ill-advised investments in the past, you can be pretty sure
your name is on someone's alumni list. It's the list swindlers
prize most: Easy preys who are eager to recoup (but are doomed
to repeat) their earlier losses.
- What risks are involved in the proposed investment?
Except for obligations of the U.S. Treasury, which are
considered risk-free, all investments involve some degree of
risk. And some investments, by their nature, involve greater
risks than others. Keep in mind that if the salesman had
knowledge of a sure-thing, big-profit investment opportunity,
he wouldn't be on the phone talking with you.
- Can you send me a written explanation of your investment
so I can consider it at my leisure?
For someone peddling fraudulent investments, that can be a
double turnoff. For one thing, most crooks are reluctant to put
anything in writing that might cause them to run afoul of
postal authorities or provide material that, at some point,
might become evidence in a fraud trial. Secondly, swindlers
don't want you to do anything at your leisure. They want your
money now.
Accordingly, it's a good rule of thumb that any investment
which "absolutely has to be made immediately" shouldn't be made
at all. You may not always be right, but you are less likely to
be sorry.
- Would you mind explaining your investment proposal to some
third party, such as my attorney, accountant, investment
advisor or banker?
If the answer goes something along the lines of "normally,
I'd be glad to, but there isn't time for that," or if the
salesman snaps back by asking "can't you make your own
investment decisions." these are virtually certain clues that
your final answer should be an emphatic "No."
- Can you give me the names of your firm's principals and
officers?
Although some persons who establish and operate dishonest
firms change their own names as often as they change their
firms' names, even the hint that you are the kind of investor
who checks into things like that can be a fast turn-off for a
swindler.
- Can you provide references?
Not just another list of other investors who supposedly
became fabulously wealthy (the names you get may be the
salesman's boss or someone sitting at the next phone), but
reputable and reliable recommendations such as a bank or
well-known brokerage firm that you can easily contact.
- Do you have any documents such as a prospectus or risk
disclosure statement that you can provide?
This may not be available in connection with all types of
investments but in many investment areas--such as securities,
futures and options trading--it's required. And there can be
requirements that you be provided with this information and
acknowledge in writing that you have read and understood it.
Obviously, it's not the sort of information a swindler is likely
to distribute.
- Are the investments you are offering traded on a regulated
exchange, such as a securities or futures exchange?
Some bona fide investments are and some aren't, but
fraudulent investments never are. Exchanges have strict rules
designed to assure fair dealing and competitive price
determination. There are also in-place mechanisms to provide
for rule enforcement and to impose severe sanctions against
those who fail to observe the rules.
- What governmental or industry regulatory supervision is
your firm subject to?
If the salesman rattles off a list that ranges from the FBI
to the Boy Scouts, tell him you'd like to check the firm's good
standing before making an important investment decision. Then
verify the response. Few things discourage a swindler faster
than the thought that his first visitor the next morning may be
from a regulatory agency.
If, on the other hand, you are told his particular area of
investment isn't subject to regulation (perhaps because
everyone in his business is an ethical, upstanding citizen),
take that explanation for whatever you think it's worth. At the
very least, keep in mind that any ongoing supervision which
isn't being provided by a regulatory organization or agency
will have to be provided by you.
- How long has your company been in business?
In any kind of business activity, there can be advantages
to dealing with a known, established company. This isn't to say
that new businesses aren't starting up all the time or that the
vast majority aren't perfectly reputable. But if you find
yourself talking with someone who doesn't seem to have a past,
it can be worthwhile to find out why. Many swindlers have been
running scams for years but understandably aren't anxious to
talk about it.
- What has your track record been?
Before you accept a salesman's assurance that he can make
money for you, you have the right to know what his performance
has been in making money for others. And ask to have the
information (if there is any) in writing. Boasting over the
phone is one thing; putting it down on paper is quite another.
In any case, even if you are able to obtain a documented
performance record, don't lose sight of the fact that past
performance in itself provides no assurance of future
performance.
- When and where can I meet with you or with another
representative of your firm?
Chances are a crooked operator--particularly if he is
operating out of a telephone boiler-room--isn't going to take
the time to visit with you and even more certainly doesn't want
you to see his place of business.
- Where, exactly, will my money be? And what type of regular
accounting statements do you provide?
In many investment areas, such as futures trading, firms
are required to maintain their customers' funds in segregated
accounts at all times. Any mingling of investors' funds with
those of the firm or its principals is prohibited. You might
also want to find out what, if any, routine outside audits the
firm's account records are subject to.
- How much of my money would go for commissions, management
fees and the like?
And ask whether there will be other costs such as interest
or storage charges, or whether the investment agreement involves
any type of profit sharing arrangement in which the firms'
principals participate. Insist on specific answers, not glib
and evasive responses such as "that's not important" or "what's
really important is how much money you are going to make." And,
again, get it in writing, just as you would any other type of
contract.
- How can I liquidate (i.e. sell the item I'd be investing
in) if and when I decide I want my money?
If you find that the investment is illiquid, or there would
be substantial costs if liquidated, or that you are unable to
get straight and solid answers, these are all things to consider
in deciding whether you want to invest.
- If disputes should arise, how can they be resolved?
Short of having to go to court to sue someone, does the
company or regulatory organization provide a mechanism for
resolving disputes equitably and inexpensively through
arbitration, mediation, or a reparations procedure? Aside from
seeking important information, you may be able to detect whether
the salesperson is uncomfortable or impatient with this line of
questioning. Swindlers generally will be.
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