May 2005

Tax time has just passed for another year. If you’re like me, that always turns the mind to financial matters. The holiday bills are just all paid off and vacations are coming up. This year, there’s also all that buzz about the future of Social Security and reform proposals that may make investors of everyone. Looking at it all, we think, oh my, it’s time to start doing a better job of financial planning and growing those savings.

All that thinking about finances can make you a little anxious and set you up for the “get rich quick” investment scam artists. Via email, phone, and snail mail, the offers pour in to “double or triple your money quick . . . no risk . . . guaranteed.” The promoter sounds so convincing and the Web site looks so slick. And it’s so easy to say or click “yes.” That’s exactly what thousands of investment scammers are hoping you’ll do.

But it’s not hard to avoid being an easy target for investment fraud. Even if the only investments you have are savings accounts or savings instruments (such as CDs), an IRA or 401K, or your home, it’s smart to know how to say no to investment scams and fraud.

Test your investment savvy

Before you review the warning signs and protective tips below, you might want to check out your Investment Fraud Awareness with this quiz from the North American Securities Administrators Association (NASAA), an intergovernmental group of securities regulators from the United States and Canada. To take the quiz, it asks for some demographic information—you only need to provide your state, province, or territory not your age or gender. I found the quiz most informative because it provides the answer and explanatory information (in a pop-up window) as you answer each question (the explanatory response to your answer may load slowly, so wait for it!).

Caution flags that usually indicate shady offers

The Federal Trade Commission, NASAA, and other experts note that phony sales pitches for scam investments (and most other phony business “opportunities”) share these characteristics:

• The promotion/promoter promises you a high return or a better return on your money than any other investment you have.
• They guarantee big profits in a short time.
• They say the opportunity has “no risk” or “low risk.”
• They pressure you to act right now because the opportunity won’t last or the “market is moving” or some other excuse.
• They often play on your fears. They particularly target seniors by playing on such worries as not having enough income for catastrophic emergency medical costs or outliving retirement savings.

Tips for protecting yourself from investment scams

Adopting just a few personal rules for handling your approach to savings and investments can help protect you against most investment fraud.

• Ignore cold calls or unsolicited email or snail mail pitches. In my opinion that’s the safest option. Of course, many reputable brokers and investment businesses use cold calls, but I think “just saying no” to cold calls is safest. Remember that sounding friendly, trustworthy, plausible, and concerned about your welfare is the con artists’ chief weapon. If you are interested in investing or improving your investments, do your homework using sound independent sources, then you initiate the call.
• Never act quickly. Take time to do independent research. This holds true for any investment opportunity whether it’s presented by a stranger or a friend, or by an institution you know or a business unknown to you.
• Independently check out every offer you are considering. In most states all persons offering investment securities must be registered with the state. Don’t accept the information in literature or on Web sites at face value; use independent sources to check the offerings out. Ask for complete information in writing about the risks, obligations and costs of the investment product; then check it out thoroughly. Where applicable, be sure to look at the information that companies are required to file with regulatory agencies as posted on those agency Websites. Even if the offer comes from a trusted friend, check it out.
• Work with your investment advisor, if you have one. If you have an investment advisor or broker or account manager, work with them to be sure you understand your investments and the recommended investment strategies. Ask questions. Stay informed. Investment advisors can do their best job for you when you are actively interested in your account.
• Check your account statements or written reports regularly. Look for errors. Ask questions when you have them. Be sure that there are no unauthorized or excessive trades or activities on your account. Say no to any “opportunity” that doesn’t have a regular, written way of reporting what’s happening with your money.
• Report abuse or fraud promptly to your state regulatory agency. If you suspect someone is “churning” your account, for example, or if you have asked to pull your profit or principal out of the investment and the representative or company stalls you, these may signify abuse. Report these and other problems quickly.
• If you’ve already been an investment fraud victim, beware of “reload” scams. Once you’ve been burned by one scam, the bad guys usually know who you are. If you’ve been a victim, expect to receive offers to “help” you retrieve those lost funds. Whether they call you or you see such an offer online, ignore it: the scammers just want to steal more of your money in a bogus attempt to “retrieve” what you lost earlier. This shameful ploy is called a “reload” scam—they’ve taken aim at you again.

Financial planning and investment resources from your Credit Union

Corning CU makes available a wide range of investment education resources and financial planning expertise through Corning Credit Union Investment Services, LLC.

For more information

If you live in New York, the Attorney General’s office provides a Website with Investor Education reports and other resources. The securities regulation offices of most other states also provide good information; locate the agency for your state on the list provided by the North American Security Administrators Association, an intergovernmental group.

10 Tips to Protect Your Nestegg from NASAA—even though they are targeted at older investors, these tips are applicable to all investors.

Investment Risks from the FTC

Investing Wisely Online from OnGuard Online

The Securities and Exchange Commission provides a number of publications with investor information.

Investment Swindles: How they work and how to avoid them from National Futures Association. Written in 1987 but offers good information that is still valid.

Prepared for Corning Credit Union by Remar Sutton & Associates, May 2005. Reviewed and updated June 2008. All rights reserved.