How to Spot Investment Fraud

How to Spot Investment Fraud

Investment fraudsters make their living by promising deals that appear both good and true. They are masters of persuasion, and once they know more about you, they will bombard you with influence tactics.

The FINRA Investor Education Foundation identified the five most common persuasion tactics used by investment fraudsters:

Phantom Riches—dangling the prospect of wealth, enticing you with something you want but can’t have.

Source Credibility—trying to build credibility by claiming to be with a reputable firm, or to have a special credential or experience.

Social Consensus—leading you to believe that other savvy investors have already invested.

Reciprocity—offering to do a small favor for you in return for a big favor.

Scarcity—creating a false sense of urgency by claiming limited supply.

What should you do if you suspect a fraudster is trying to use these high-pressure persuasion tactics on you? The best thing to do is end the conversation.

Or, ask the professional if he or his firm is registered with FINRA, the U.S. Securities and Exchange Commission or a state securities regulator. Also ask if the product is registered with an agency. Then visit or, or call FINRA (844-574-3577), the SEC (800-732-0330) or the Colorado Division of Securities (888-295-7422), to check his answer.