By Patricia Uceda, Fall 2014 Graduate Research Assistant
The SEC has provided several tips that investors can follow to avoid becoming a victim of online fraud. The key tip they emphasis is to be an educated investor, which can largely be accomplished by following these tips:
- Be Wary of Unsolicited Offers to Invest: Many times fraudsters will look for victims on social media sites, chat rooms, and online forums. If you receive any type of unsolicited communication regarding an investment opportunity, you should be extremely cautious and do your homework. If it seems illegitimate, consider reporting it to the SEC Complaint Center.
- Look Out for Common “Red Flags”: There are certain types of red flags that are very high indicators of fraud. First, if an investment sounds too good to be true, with claims of “incredible gains” or “huge upside and almost no risk,” it probably is. Second, if an investment promises “guaranteed” returns, this is another red flag because every investment entails some level of risk. Lastly, any type of pressure to buy right now is an indicator of fraud; you should never be pressured or rushed into buying an investment before you have time to investigate on your own.
- Use Privacy and Security Settings: Investors should understand that unless they guard information online, it may be available to anyone with access to the Internet, including fraudsters. Therefore, investors (and all of us) should understand and employ privacy and security settings to ensure that personal information stays private.
- Ask Questions and Be Skeptical: Especially with online offers, investors should be skeptical and research every aspect of the offer before making a decision. Never rely solely on the promoter’s word. You can check out investments using SEC’s EDGAR filing system or your state’s securities regulator. You can check out registered brokers using FINRA’s BrokerCheck, and registered investment advisers with the SEC’s Investment Adviser Public Disclosure website.
Check back with us tomorrow to learn more about common investment scams involving social media.