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What to know about investment fraud tactics

| Mar 21, 2020 | Criminal Defense

Every so often, we hear on the news about the federal government arresting people on a charge of investment fraud. These sorts of crimes take many forms, from insider trading to Ponzi schemes. Financial crimes are a serious matter because they defraud innocent people of money, and in many cases substantial amounts of it.

The Motley Fool explains some of the common signs that scammers are behind an investment pitch. Understanding these signs may help you to avoid investment scams, or keep you from undertaking actions that might sweep you up in a federal investigation of a financial crime.

Guarantees on returns

Investment fraudsters will say just about anything to get you to sign on. They may pitch you unexpectedly through a letter, a phone call, an email, or even someone who shows up at your door. They may tell you that their investment offers guaranteed returns. The risk is minimal or even nonexistent. They may claim their returns will consistently increase.

All of these are major warning flags. Investments carry risk. A person who suggests otherwise is likely trying to sell you on an investment that is not on sound footing. Even great investments will, at times, take a downturn. Investments that can only go up are likely too good to be true.

Discouraging transparency

Many scammers dress up their offers with nice sounding phrases so that you do not become curious about the background of the investment. You should feel free to ask questions about the investment, including asking for documents on the securities. Scammers will often claim their investment is too complicated to explain or say they do not have the documents on hand. Delaying tactics like these often indicate that the party you are dealing with does not want you digging too deeply into their background.

Disclosing inside information

Investors who pitch an investment based upon nonpublic information are engaging in illegal use of insider information.  If a company touts the use of inside information as part of its pitch, you are dealing with someone who is breaking the law.

According to Marketwatch, people may disclose inside information in a variety of ways. The federal government is on the watch for transactions that look suspicious, such as trading large numbers of stocks before a business makes a big public announcement. The government will look at anyone who might have access to inside information, like company board members, secretaries, or attorneys.