Fraud Protections: How to Protect Yourself

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Lessons from the recent financial crisis are still being learned—however one lesson is crystal clear: investors need better investment fraud protections. If investment opportunity uses lots of new vocabulary words; is hard to understand, and can make huge amounts of money short-term, most likely, it’s too good to be true.

Information is your best tool to invest wisely and to avoid security investment scams and securities fraud protections. Before investing, you should learn basic investment terms, more about the actual security product and its degree of investment fraud protection, more about your broker or investment advisor—and more about the company’s business and financial standing.

Below offers helpful advice on gathering the right information, so you have fraud protections in place and avoid becoming a victim. If you or a loved one has been a victim of securities fraud, let Seeger Weiss help. We’ll provide you with FREE investment fraud protection case evaluation.

Learn more about securities product and protections against fraud before investing

  • Is investment product registered with the SEC and my state securities agency?
  • How will investment make money? (Dividends? Interest? Capital gains?)
  • What are the total fees to purchase, maintain, and sell investment?
  • How liquid is investment? How easy would it be to sell if you need money right away?
  • What are the specific securities fraud protections and risks associated with this investment? What is the maximum I could lose?
  • How long has the company been in business? Is its management experienced? Has management been successful in the past? Have they ever made money for investors before?

Gauge your degree of risk and investment fraud protections

Nobody invests to lose money. However, investments always entail some degree of protection fraud and risk. Be aware:

  1. The higher the expected rate of return, the greater the risk; depending on market developments, you could lose some or all your initial investment. With some investments, such as options, you can lose more than the amount of your investment. Ask whether the security can be redeemed or if there is a market for it.
  2. Some investments cannot easily be sold or converted to cash. Check if there is any penalty or charge if you must sell an investment quickly or before its maturity date.
  3. Investments in securities issued by a company with little or no operating history or published information may involve greater risk and investment fraud.
  4. Securities investments, including mutual funds, are NOT federally insured against a loss in market value.
  5. Securities you own may be subject to tender offers, mergers, reorganizations, or third-party actions that can affect the value of your ownership interest. Pay careful attention to public announcements and information sent to you about such transactions. They involve complex investment and investment fraud protections decisions. Be sure you fully understand the terms of any offer to exchange or sell your shares. Sometimes when in a partial or two-tier tender offer, failure to act can have detrimental effects on your investment.
  6. The past success of a particular investment is no guarantee of future performance.

Learn about your broker or investment advisor for added investment fraud protections

  • Are they registered with state securities regulator?
  • How long has firm been in business?
  • How many arbitration awards have been filed against firm?
  • What training and experience have they in securities fraud protections?
  • Have they personally been involved in any arbitration cases?

Learn about the company and potential fraud before investing

  1. Discover whether the company has registered its securities with the SEC or state’s securities regulators.
  2. Make sure you understand the company’s business and its products or services.
  3. Read carefully the most recent reports the company has filed with its regulators and pay attention to the company’s financial statements, particularly if they are not audited or certified by an accountant. If the company does not file reports with the SEC, be sure to ask your broker for what’s called the “Rule 15c2-11 file” on the company. That file will contain important information about the company.
  4. Check out people running the company with your state securities regulator, and find out if they’ve ever made money for investors before. Also ask whether the people running the company have had run-ins with investment fraud protection regulators or other investors.
  5. Make sure the broker and his or her firm are registered with the SEC and licensed to do business in your state. And ask your state securities regulator whether the broker and the firm have ever been disciplined or have complaints against them.

What to avoid for greater investment fraud protections

  • Never send money to purchase an investment based simply on a telephone sales pitch.
  • Never make a check out to a sales representative personally.
  • Never send checks to an address different from the business address of the brokerage firm or a designated address listed in the prospectus.