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Avoiding Fraud


Protect your Investment and liquid assets.  A fundamental understanding of how scam perpetrators operate can help you to avoid fraud and protect your money and investments. Educating yourself to invest safely also can assist you in reaching your financial goals and will mean a huge difference in your retirement years. Here are some proactive steps to avert the potential of being victimized:

  • Preventing  investment fraud                                                      fraud-2               
  • Red flags of fraud.
  • Social media and your identity.                                                                         
  • Types of investment fraud,
  • Hints & Tips
  • What is an Accredited Investor?
  • Finding Help


Remember: if you have a question or concern about an investment, or you think you have encountered a fraud, please contact the SECFINRA, or your state securities regulator  to report the fraud, or impropriety.




Preventing Investment Fraud


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Fraudsters are counting on you not to investigate before you invest. Fend them off by doing your own digging. It’s not enough to ask for more information or for references – fraudsters have no incentive to set you straight. Take the time to do your own independent research.


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Unsolicited emails, message board postings, and company news releases should never be used as the sole basis for your investment decisions. Understand a company’s business and its products or services before investing. Look for the company’s financial statements on the SEC’s EDGAR filing system. You can also check out many investments by searching EDGAR.


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Spend some time checking out the person touting the investment before you invest – even if you already know the person socially. Always find out whether the securities salespeople who contact you are licensed to sell securities in your state and whether they or their firms have had run-ins with regulators or other investors. You can check out the disciplinary history of brokers and advisers for free using the SEC’s and FINRA’s online databases. Your state securities regulator may have additional information.


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Online and social marketing sites offer a wealth of opportunity for fraudsters. For tips on how to protect yourself online see Protect Your Social Media Accounts.

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[fontawesome icon=”tint” circle=”yes” size=”large”] Make yourself knowledgeable about different types of fraud and red flags that may signal investment fraud.



Red flags of fraud and Enticements


How do successful, financially intelligent people fall prey to investment fraud? Researchers have found that investment fraudsters hit their targets with an array of persuasion techniques that are tailored to the victim’s psychological profile. Here are red flags to look for:

[tabs tab1=”When it sounds too good to be true, it is” tab2=”Assured return – 100% Safe, aren’t” tab3=”Know the “halo” effectlayout=”vertical”]
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[fontawesome icon=”random” circle=”yes” size=”large”]Watch for “phantom riches.” Compare promised yields with current returns on well-know stock indexes. Any investment opportunity that claims you’ll receive substantially more could be highly risky – and that means you might lose money. Be careful of claims that an investment will make “incredible gains,” is a “breakout stock pick” or has “huge upside and almost no risk!” Claims like these are hallmarks of extreme risk or outright fraud.
[tab id=2]Each investment carries some degree of risk, which is reflected in the rate of return you can expect to receive. If your money is perfectly safe, you’ll most likely get a low return. High returns entail high risks, possibly including a total loss on the investments. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” They try to plant an image in your head of what your life will be like when you are rich. Don’t believe it.[/tab]
[tab id=3]Investors can be blinded by a “halo” effect when a con artist comes across as likeable or trustworthy. Credibility can be faked. Check out actual qualifications.[/tab]



 Social Media Accounts


The Internet has made our lives easier in so many ways. However, you need to know how you can protect your privacy and avoid fraud. Remember, not only can people be defrauded when using the Internet for investing; the fraudsters use information online to send bogus materials, solicit or phish.

Phishing is the attempt to obtain financial or confidential information from Internet users. This phishing expedition usually begins with an email that looks as if it is from a legitimate source, often a financial institution. The email contains a link to a fake website that looks like the real site. Fraudsters want you to provide account and password information, and then they have access to your account.


Protect your identity when using social media:

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Always check the default privacy settings when opening an account on a social media website. The default privacy settings on many social media websites are typically broad and may permit sharing of information to a vast online community. Modify the setting, if appropriate, before posting any information on a social media website.


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Many social media websites require biographical information to open an account. You can limit the information made available to other social media users. Consider customizing your privacy settings to minimize the amount of biographical information others can view on the website.[/tab]

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Never give account information, Social Security numbers, bank information or other sensitive financial information on a social media website. If you need to speak to a financial professional, use a firm-sponsored method of communication, such as telephone, letter, firm e-mail or firm-sponsored website.[/tab]

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When choosing friends or contacts on a social media site, think about why you use the website. Decide whether it is appropriate to accept a “friend” or other membership request from a financial service provider, such as a financial adviser or broker-dealer. There is no obligation to accept a “friend” request of a service provider or anyone you do not know or do not know well.

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Familiarize yourself with the functionality of the social media website before broadcasting messages on the site. Who will be able to see your messages — only specified recipients, or all users?





On-Line Safety Tips


As with all computer and web-based accounts, take precautions to keep your social media account information secure. Here are some security tips:

  • Choose and construct  a “strong” password, keep it secure, and change it frequently.
  • Use different passwords for different accounts.
  • Use caution with public computers or wireless connections. Try to avoid accessing your social media accounts on public or other shared computers. But if you must do so, remember to log out completely by clicking the “log out” button on the social media website to terminate the online session.
  • Be mindful of accessing your social media accounts on public wireless connections, such as at a coffee shop or airport. It is very easy to eavesdrop on Internet traffic, including passwords and other sensitive data, on a public wireless network.
  • Be extra careful before clicking on links sent to you, even if by a friend.
  • Secure your mobile devices. If your mobile devices are linked to your social media accounts, make sure that these devices are password protected in case they are lost or stolen.





Types of Fraud

fraud-4Securities frauds come in many types and varieties. Whether you are a first-time investor or have been investing for many years, here are some basic facts you should know about the different types of fraud. Knowing the various types of fraud, will not only make you savvy, but will also prevent you from being a victim. Many of these schemes have changed their names, but the underlying methodology and operations, remain the same.  




          • Advance Fee Fraud
          • Affinity Fraudmoneyroll
          • High Yield Investment Programs
          • Internet and Social Media Fraud
          • Microcap Fraud


  • Ponzi Schemes
  • Pyramid Scheme
  • Prime Bank Investments
  • Promissory Notes
  • Pump and Dump Schemes
  • Pre-IPO Investment Scams


          • Commodity Pool Fraud
          • Foreign Currency Trading Fraud
          • Precious Metals Fraud


Hints and Tips

  • A good system for keeping personal money records will include copies of important documents like your will, property ownership documents, information about savings and insurance, and other document. It should include overview of what happens to property after a major life event occurs.
  • Assume that any offer that “sounds too good to be true” – especially one from a stranger or an unfamiliar company — is probably a fraud.
  • Look at your bank statements and bills as soon as they arrive and report any discrepancy or anything suspicious, such as an unauthorized withdrawal or charge.
  • Be wary of request to “update” or “confirm” personal information, especially your Social Security number, bank account numbers, credit card numbers, personal identification numbers, your date of birth or your mother’s maiden name in response to an unsolicited call, letter or email.



Finding help

If you have a question or concern about an investment, or you think you have encountered one of these frauds, please contact the SEC, FINRA, or your state securities regulator to report the fraud and to get assistance.                                                                                                       


U.S. Securities and Exchange Commission (S.E.C.)                                                           

Financial Industry Regulatory Authority (FINRA)

Stop, Think, Connect (DHS)

Victim of Identity theft or Tax related Identity theft?   (Follow this link to learn more.)




Accredited Investor

Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.”

The federal securities laws define the term accredited investor in Rule 501 of Regulation Das:

  1. a bank, insurance company, registered investment company, business development company, or small business investment company;
  2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
  3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
  4. a director, executive officer, or general partner of the company selling the securities;
  5. a business in which all the equity owners are accredited investors;
  6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
  7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
  8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

*Contact Capital Oversight or the SEC for securities registration requirements*

 Capital Oversight has provided this information as a service to investor. It is neither a legal interpretation nor a statement of Capital Oversight Inc policy. If you have questions concerning or pertaining to the meaning or application of a particular law or rule, please consult an attorney that practice exclusively in securities.




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