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One of the double-edged-swords of private investigation is that we tend to be quite cautious and take very little at face value. We’ve heard the stories and investigated the shady characters; often we are more surprised when something appears to be on the up and up. In our lives, fraud seems to be commonplace.

Turns out, it is! According to a recent FINRA Investor Education Foundation report, 80 percent of Americans have been solicited for a potentially fraudulent offer. But the majority of people have difficulty identifying a scam. And 11% of the Finra poll participants reported that they had lost significant amounts of money in what turned out to be a fraudulent investment scheme.

What may be more surprising is that the more educated and wealthier population is more likely to fall for a fraud or questionable investment.

Red Flags

Red Flags

There are a myriad of investment and assistance offers that should raise a red flag and deserve increased scrutiny before you commit any money. A few of the more prevalent are:

Something for nothing – Promises of an unreasonably high rate of return on a reported very low risk investment.

Cold call pitches – This could be anything from an unknown person calling with an investment opportunity to an email informing you of large payment (lottery winnings, inheritance, etc.) in exchange for an initial investment or fee.

Investor Commissions – An invitation, often from a known person, to invest in a program that provides commissions for referring other individuals.

The “Educational” Seminar – A meeting that is marketed to potential investors as an educational course, but is instead a sales pitch for a particular investment.

Transactional “Assistance” – Particularly in a distressed housing market or down economy, fraudsters and identity thieves may offer assistance to individuals seeking assistance with a variety of official filings. Perhaps it is filing tax forms with the IRS to secure a large refund. Or maybe it is an individual who promises to help you with mortgage records to fight foreclosure proceedings.

Scams and fraudulent investment schemes are constantly evolving and changing. You may have complete faith in the person you are entrusting with your money. Or you may have a nagging doubt in the back of your mind. Why chance it? There are a number of things that you can do if you think there is a chance you’re dealing with a shady character.

Check on them. Then check on yourself.

Check on them

Whether you have already invested or paid money, or you are contemplating it, you should do a little digging to determine whether the individual, company, or investment product exists as represented. There are numerous resources available online for little or no cost:

Ask Questions: For example, who is the company’s auditor? Is it a reputable firm and are you able to confirm the relationship? What are the relationships between the individuals involved? What is the history of the investment returns? Were you provided with documentation about the investment? Do the numbers add up and returns seem plausible? Sometimes a simple phone call or increased scrutiny of the information provided to you will give you all the answers you need.

Online Presence: Check out the company’s website and review the individual’s online presence to see if they are who they appear. Do the photos match up? What about other information you know about this person or company? Is there anything that could indicate that the company or person are not who they claim to be? One useful tool for this is Archive.org, which will let you review a website’s past appearance. Also useful are the Better Business Bureau database and online media sources that allow newspaper article searches.

Corporate Filings: Is the company a registered business in your state? In most cases, this is easily verified through an online check with your state’s secretary of state or division of corporations. If you locate a filing, look for potential red flags in the dates incorporated, status, and associated persons.

Regulatory Agency Records: Finra, the National Futures Association, and the SEC all maintain databases of registered individuals and companies, as well as any adverse or disciplinary proceedings against them.

Government Agency Records: The Federal Bureau of Prisons, as well as many state corrections agencies, provides an inmate locator that allows you to determine if an individual has been, or is currently, a prisoner. Searches of the Federal Trade Commission and state attorney general sites may also provide information about complaints or adverse proceedings against a company or individual. Also a good source of information is a state’s consumer affairs department and its attorney general’s office. If your concern is related to real estate, check local property records (most are available online) under the name of the individual and company.

Professional Licensing: If the individual or firm claims to be in a regulated profession (e.g. auditor, CPA, attorney, etc.), check the state’s registry in order to confirm the license and also any disciplinary actions.

Litigation: With court records increasingly available for free or at low cost online, you may want to review the litigation history for the company and individual. Have they previously been sued or arrested?

Check on yourself

This is particularly important if you have already invested money with a potential scammer. However, it is always wise to routinely review your financial and personal information to ensure that there hasn’t been unauthorized activity. There is always a chance that you are being targeted now because you didn’t catch on to a previous scam.

At a minimum, you should review your credit report and financial accounts (e.g. bank accounts, investments, retirement savings, etc.). Use online databases or go to your county clerk’s office to review property records for any real estate that you own. And you may want to check your online presence to be sure that it is consistent with information you have posted yourself.

So where do you turn?

An additional finding in the Finra report was that a shockingly low number of investment scams are reported. This is due to a number of issues – embarrassment, fear of getting a close friend or relative into trouble, or assumption that nothing will be done about it. But it also isn’t always clear where you should report a fraud. (Will my local detective really be able to hunt down the Internet scammer based in Asia?)

A few of the places you can turn:

  • Private Investigator
  • Attorney
  • Local law enforcement
  • State law enforcement (e.g. state investigations division or attorney general)
  • Federal law enforcement or agency (e.g. FBI, Postal Inspector, SEC, FTC, etc.)
  • Regulatory agency (e.g. Finra, SEC, NFA etc.)
  • Better Business Bureau

The correct answer to the question of where to report a fraud may depend on the amount of your loss, the capabilities of your local law enforcement, and your ability to provide adequate information about the scam.

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