An investment fraud can look legitimate in so many ways, but there are many warning signs everyone should be aware of. The key is not only to recognize some of these warning signs, but to act on them.
15 Warning Signs of an Investment Fraud:
1There is Nothing on Google! – Not finding anything on the first few pages of Google might give you some level of comfort. What you may not know is that a fraudster may have paid someone to bury the results of past discretions. Even so, Google is only the tip of the iceberg as far as the information that you can get.
2Planes, Boats, Yachts – Ponzi schemers love to show their jewelry, vacation homes, cars, planes and yachts. They must figure that they are going to be caught at some point and should enjoy the fruits of their labor.
3Pedigree – There are certainly a number of successful investors who have come from nowhere, but for the most part, the successful investors have come from prominent firms or have a prominent background in the industry.
4Lofty Credentials – Having a degree from an Ivy League school or having experience at a top flight investment firm instantly gives people credibility. The problem is that the fraudster knows that as well and knows that most people will take their word for it.
5All the trappings of success – In order to get access to people’s money, you have to have their trust, and part of building that trust is acting the part. Making high profile donations to local charities, flying private jets and dressing the part are all ways that a fraudster gives the impression to potential investors that they have all the trappings of success.
6Unverifiable claims – Insider information, patent pending formulas or information that nobody has access to are all examples of things that are either impossible to verify or not verifiable at all. You can’t always trust people; if it can’t be independently verified, it’s not worth anything more than the paper it’s written on.
7Multiple Aliases – You should always be wary of people that have multiple aliases (John, J. Charles, “Charlie”, “J.C.”, etc.). The fact of the matter is that it’s more difficult to identify issues in someones past if they have multiple aliases.
8Secretive – Bernie Madoff was notorious for his secrecy. Secret, confidential, exclusive clubs of investors may sound tempting, but it should be anything but.
9Verifiable through local regulators? – If local regulatory offices can’t verify the existence of the investment scheme, it’s a big cause for concern.
10“Guaranteed” Returns or “No Risk” Investments – The truth is that no investment strategy is truly “no risk.” The more you are guaranteed the more you should examine what you are being guaranteed against.
11Lack of Transparency – The more transparent that you have to be to investors, the more difficult it is to cover up the fraud.
12It Sounds to Good to Be True? – If it sounds too good to be true, it probably is.
13From a different area – It makes sense not to commit another fraud in the community where they got into trouble before. By moving to a new area, a fraudster may be trying to escape some of his past.
14No name accountant or administrator – The reason for having an auditor and third-party administrator is to have professional/non-biased oversight of the firm, but if that auditor or third party administrator is someone that nobody has ever heard of, there is some good reason to do some extra digging around.
15Too Many Questions – Asking a lot of questions can make an investment fraudster uncomfortable, after all, it’s a sign that someone is doing their homework. Every investor has a right to ask as many questions as they want; it’s their money after all.
What do you do?
If you have recognized any of these warning signs, you can trust your gut instinct and run for the hills, or you can hire a professional private investigator who can help get beneath the surface and find information that can help you make a more informed decision.