Before investing with a new broker or financial advisor, consider checking out the respective credentials at the following resources:
To file a complaint or get help:
- Securities Helpline for Seniors: 1-844-574-3577
- Securities Fraud: Submit a Complaint to the Securities and Exchange Commission (SEC) or call the SEC's Office of Investor Education and Advocacy (800) 732-0330.
- Commodity Futures, Commodity Pools, Currencies, Options or Precious Metals: Submit a Complaint to the CFTC or call the CFTC at (866) 366-2382.
These schemes, sometimes
referred to as high yield investment fraud, involve the illegal sale or
purported sale of financial instruments. Financial instruments are defined
broadly as any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument to another entity. These instruments
can be a tradeable asset of any kind, to include registered securities and
commodities and unregistered securities (e.g. a simple promissory note between
the fraudster and his/her victim investors). Schemes take on many forms, and
perpetrators quickly alter schemes as they are thwarted by law enforcement.
- Ponzi Schemes: A Ponzi scheme is an investment fraud that involves the payment of purported
returns to existing investors from funds contributed by new investors. Ponzi
schemes often share common characteristics, such as offering overly
consistent returns, unregistered investments, high returns with little or no
risk, or secretive or complex strategies. This arrangement gives investors
the impression there is a legitimate, money-making enterprise behind the
subject’s story, but in reality, unwitting investors are the only source of
- Affinity Fraud:
Perpetrators of affinity fraud take advantage of the tendency of people to
trust others with whom they share similarities—such as religion or ethnic
identity—to gain their trust and money.
- Pyramid Schemes:
In pyramid schemes, as in Ponzi schemes, money collected from new
participants is paid to earlier participants. In pyramid schemes, however,
participants receive commissions for recruiting new participants into the
- Prime Bank
Investment Fraud: In these schemes, perpetrators claim to have access to
a secret trading program endorsed by large financial institutions such as
the Federal Reserve Bank, Treasury Department, World Bank, International
Monetary Fund, etc. Perpetrators often claim the unusually high rates of
return and low risk are the result of a worldwide “secret” exchange open
only to the world’s largest financial institutions. Victims are often drawn
into prime bank investment frauds because the criminals use sophisticated
terms, legal-looking documents, and claim the investments are insured
- Advance Fee Fraud:
Advance fee schemes require victims to advance relatively small sums of
money in the hope of realizing much larger gains. Not all advance fee
schemes are investment frauds. In those that are, however, victims are told
that in order to have the opportunity to be an investor (in an initial
offering of a promising security, investment or commodity, etc.), the victim
must first send funds to cover taxes or processing fees, etc.
- Promissory Notes:
These are generally short-term debt instruments issued by little-known
or nonexistent companies. The notes typically promise high returns with
little or no risk and are typically not registered as securities with the
appropriate regulatory agency.
- Commodities Fraud:
Commodities fraud is the sale or purported sale of a commodity through
illegal means. Commodities are raw materials or semi-finished goods that are
relatively uniform in nature and are sold on an exchange (e.g., gold, pork
bellies, orange juice, and coffee). Most commodities frauds involve illicit
marketing or trading in commodities futures or options. Perpetrators often
offer investment opportunities in the commodities markets that falsely
promise high rates of return with little or no risk. Two common types of
commodities investment frauds include:
Foreign Currency Exchange (Forex) Fraud:
The perpetrators of Forex frauds entice
individuals into investing in the spot foreign currency market through
false claims and high-pressure sales tactics. Foreign currency firms
that engage in this type of fraud invest client funds into the Forex
market—not with the intent to conduct a profitable trade for the client,
but merely to “churn” the client’s account. Churning creates large
commission charges benefiting the trading firm. In other Forex frauds,
the perpetrator creates artificial account statements that reflect purported
investments when, in reality, no such investments have been made. Instead,
the money has been diverted for the perpetrator’s personal use.
Fraud: These fraud schemes offer investment opportunities in metals
commodities such as rare earth, gold, and silver. The perpetrators of
precious metals frauds entice individuals into investing in the
commodity through false claims and high-pressure sales tactics.
Oftentimes in these frauds, the perpetrators create artificial account
statements that reflect purported investments when, in reality, no such
investments have been made. Instead, the money has been diverted for the
perpetrators’ personal use.
- Market Manipulation:
These schemes, commonly referred to as “pump-and-dumps,” are effected by
creating artificial buying pressure for a targeted security, generally a
low-trading volume issuer in the over-the-counter securities market that is
largely controlled by the fraud perpetrators. This artificially increased
trading volume has the effect of artificially increasing the price of the
targeted security (i.e., the “pump”), which is rapidly sold off into the
inflated market for the security by the fraud perpetrators (i.e., the
“dump”). These actions result in illicit gains to the perpetrators and
losses to innocent third-party investors. Typically, the increased trading
volume is generated by inducing unwitting investors to purchase shares of
the targeted security through false or deceptive sales practices and/or
public information releases.
A modern variation on these schemes involves largely foreign-based computer
criminals gaining unauthorized access and intruding into the online
brokerage accounts of unsuspecting victims in the United States. These
intruded victim accounts are then used to engage in coordinated online
purchases of the targeted security to affect manipulation while the fraud
perpetrators sell their preexisting holdings in the targeted security into
the inflated market.
- Broker Embezzlement:
These schemes involve illicit and unauthorized actions by brokers to steal
directly from their clients. Such schemes may be facilitated by the forging
of client documents, doctoring of account statements, unauthorized
trading/funds transfer activities, or other conduct in breach of the
broker’s fiduciary responsibilities to the victim client.
- Late-Day Trading:
These schemes involve the illicit purchase and sale of securities after
regular market hours. Such trading is restricted in order to prevent
individuals from profiting on market-moving information which is released
after the close of regular trading. Unscrupulous traders attempt to
illegally exploit such opportunities by buying or selling securities at the
market close price, secure in the knowledge that the market-moving
information will generate illicit profits at the opening of trading on the
Legitimate investment professionals encourage you to
ask questions and to have as much information as possible. They want you to
clearly understand the risks involved. They want you to feel comfortable
with the investments you are making. Con artists want you to believe them
and not ask questions. All they're after is your money.
- High pressure sales tactics. Beware of sales pitches, whether from individuals or in
ads, that urge you to get in on the ground floor or to act at once. Avoid
being pressured to make a quick purchase at a “low, low price,” to buy now
because “tomorrow will be too late,” or overreact to being told “don’t be a
fool,” or “when this becomes public knowledge people will be lined up to
take advantage of this golden opportunity.” Shady promoters may even offer
to have an express delivery service pick up your check! They don't want you
to take time to think, read the small print, or talk to others.
- Promises of exorbitant profits. No honest investment or business is built on quick,
astronomical profits. If it sounds too good to be true, it probably is.
- Claims of no risk or minimal risk. Return on investment is guaranteed. Assurances that “you
can’t go wrong” are a sure tip that you are being conned. Be suspect of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk.
- Overly consistent returns - Any investment that consistently goes up month after month—or that provides remarkably steady returns regardless of market conditions—should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups once in a while.
- Not answering questions or allowing you to ask questions. Con artists don’t want you to ask questions. Instead,
they will answer by asking you questions. These are usually ones intended
to get a positive response. "You would like to make more money, wouldn’t
you?" Reputable investment professionals encourage you to ask questions.
Con artists don't want you to.
- Evasive answers and lack of communication. A promoter’s failure to provide details and a disclosure
document or to respond directly to inquiries should diminish your
enthusiasm. He or she is probably hiding something.
- Claims that the investment doesn’t have to be registered. Many investment scams involve unlicensed individuals selling unregistered securities - ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments.
- Avoid any investment that isn't clearly described in
detail. Hedging Swindlers often declare that the specifics are "too
technical" to describe in layman's terms or that the information is
"classified" or "confidential." Don’t buy it. A prospectus must accompany
all investments. If it is that complicated, you probably don't want to be
- Unprofessional businesslike conduct. They refuse to return phone calls, answer correspondence,
or give out their phone number and physical address. Callers can only get
an answering machine. They always want to meet you someplace other than
their offices. These are all warning signs of fraud. There are, however,
con artists who have fancy offices, cars, and professional receptionists.
- Promises of "Inside Information". Never buy on the basis of rumors or hot tips. And acting
on "insider information" is illegal and could land you in lots of trouble.
Always rely on fact rather than emotion. If the urge gets too strong, call
your broker and ask for a research paper on the security you have in mind.
- Complex strategies - Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you’re seriously considering - including what it is, what the risks are and how the investment makes money.
- Missing documentation - If someone tries to sell you a security with no documentation - that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—he or she may be selling unregistered securities. The same is true of stocks without stock symbols.
- Account discrepancies - Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error - or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets. For instance, is the investment adviser also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occur if an adviser is also the custodian of the assets and keeper of the accounts.
- A pushy salesperson - No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate.
- When hounded on the phone by a promoter, don’t be afraid
to hang up without explanation. You do not owe the caller anything. This
kind of solicitation is an invasion of your privacy. If you have any doubts
make no promises or commitments, no matter how tentative. It is far better
to wait and lose an opportunity than to take the plunge and lose everything.
To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common tactics:
- The "Phantom Riches" Tactic - dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month in income."
- The "Source Credibility" Tactic - trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."
- The "Social Consensus" Tactic - leading you to believe that other savvy investors have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in—and so is my mom and half her church - and it's worth every dime."
- The "Reciprocity" Tactic - offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now—half off."
- The "Scarcity" Tactic - creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."
Ten Self-Defense Tips
Don’t be a courtesy victim. Con artists will not hesitate to exploit
the good manners of the potential victim. Remember that a stranger who
calls and asks for your money is to be regarded with utmost caution and
skepticism. You have absolutely no obligation to stay on the phone with a
stranger who wants your money. It's not impolite to say you are not
interested and hang up.
Don’t be rushed – check it out. Say no to any salesperson that
pressures you to make an immediate decision. If he or she doesn’t have the
time to explain the investment to your regular investment professional, or
other party, or if they ask “Can’t you make your own investment decisions?”
Say NO! You have the right and responsibility to check out the salesperson,
firm, and the investment opportunity itself. Almost all investment
opportunities must be registered with the SEC. Extensive background
information on investment professionals and firms is available from the
SEC. Before you even consider investing, get the prospectus, review it
carefully, and make sure you understand all the risks involved. But
remember, even written material sent from the promoter can be fraudulent or
Always stay in charge of your money. Don't be taken in by anyone who
wants your money and assures you that he or she is a professional and can
handle everything. Beware of any financial professional who suggests
putting your money into something you don’t understand. And never let
yourself be talked into leaving everything in his or her hands.
Always watch over and protect your nest egg. Never trust anyone who
wants you to turn over your money to them and then sit back and wait for
results. If you understand little about the world of investments, take the
time to educate yourself. Constant vigilance is a necessary part of being
Never judge a person’s integrity by how they look or sound. Far too
many investors who are wiped out by con artists later explain that the
swindler “looked and sounded so professional." Successful con artists sound
extremely professional and have the ability to make even the flimsiest
investment deal sound as safe as putting money in the bank. Remember that
sincerity in a voice, especially on the phone, has no bearing on the
soundness of an investment opportunity. Always do the necessary homework.
Watch out for salespeople that prey on your fears. Con artists know
that many investors, particularly older investors, worry that they will
either outlive their savings or see all of their financial resources vanish
overnight as the result of a catastrophic event. It's quite common for
swindlers and abusive salespeople to pitch their schemes as a way to build
up life savings to the point where such fears are no longer necessary.
Remember that fear and greed can cloud your good judgment and leave you in a
much worse financial posture. An investment that is right for you will make
sense because you understand it and feel comfortable with the degree of risk
involved. High return almost always means high risk.
Exercise particular caution if you have limited or no experience handling
money. Ask a con artist to describe his ideal victim and you're likely
to hear "elderly widow or widower." Many people now in their retirement
years have limited knowledge about handling money. They often relied on
their spouses to handle most or all money decisions. Those who have
received windfall insurance in the wake of the death of a spouse are prime
targets for con artists. People who are on their own for the first time in
years should always seek advice of family members or impartial professionals
before deciding what to do with their money.
Monitor your investments and ask tough questions. Too many investors
trust unscrupulous investment professionals and outright con artists to make
financial decisions for them. They then compound their error by failing to
keep an eye on the progress of the investment. Insist on regular written
reports. Check the written information. Look for excessive or unauthorized
trading in your funds. Don’t be swayed by assurances that such practices
are routine or in your best interest. Don’t permit a sense of friendship or
trust to keep you from demanding this information. If you suspect something
is wrong and you don’t get satisfactory answers, call the Securities
Division and let us help.
Look for trouble retrieving your principal or cashing out profits.
If a stockbroker, financial planner, or other individual stalls you when you
want to pull out your principal or profits, demand to know why. Since
unscrupulous investment promoters have probably pocketed the funds of their
victims, they will go to great lengths to explain why your savings are not
available. They may even pressure you to “roll over” non-existent profits
into new and even more alluring investments. This will only further delay
the fraud being uncovered. If you're not investing in a product with a
fixed term, such as a bond, you should be able to receive your funds or
profits within a reasonable amount of time.
Don’t let embarrassment or fear keep you from reporting investment fraud
or abuse. Investors who fail to report that they've been victimized
often hesitate out of embarrassment. Older investors fear they'll be judged
incapable of handling their own affairs and be forced into a nursing home or
other facility. Sophisticated investors don't want to admit that a smooth
talker took them in. Con artists know all about such sensitivities. They count on these fears preventing or delaying the time when the
authorities will be notified about the scam. It's true that most money lost
to investment fraud is rarely recovered beyond pennies on the dollar. In
many cases, however, when investors recognized early that they'd been
misled, they were able to recover some or all of their funds by being a
“squeaky wheel”. One of the best resources for investors who fear they have
been victimized is the Securities Division of the Department of Financial