How to Protect Yourself from Financial Fraud as a Private Investor
11/29/2023
While private investments offer compelling opportunities, not every glittering opportunity is gold. Despite specific regulations in every country designed to prevent fraud, the problem persists.
Why? Many times, investors are to blame, either by sharing too much on social media or trusting the wrong people.
The Reality of Private Investments Fraud
Imagine you're saving money for something big and important, like a down payment for a house. Now, think about someone tricking you and taking all that money away. Scary, right? That's what happened to Bob, whose story can teach us a lot about being careful with our funds.
Bob was getting ready to enjoy his retirement. He wanted to do something smart with his savings. One day, he received a call from a “financial advisor” offering to help him invest in "pre-IPO shares." This man sounded clever and convincing, juggling buzzwords Bob didn’t understand. So he thought, "Why not?" He started by giving $8,000, but soon, he sent a lot more.
When Bob’s daughter Kate heard about the "financial advisor," she sensed something was wrong.” She contacted the FMA (Financial Management Association) and discovered it was a scam. This helped her dad see the truth. But by then, Bob had already given the scammer a staggering $100,000 – more than most people make in a year.
Bob's story isn’t unique. It's a real-life example of the dangers lurking in the world of private investment. When someone you don't know offers to make your money grow quickly, chances are it’s a fraud.
How to Protect Your Finances in 3 Easy Steps
So, how can you ensure your financial safety and outsmart potential fraudsters? Here's some sage advice from our financial experts.
Step 1: Check, Check, Check
Always approach investment opportunities with a healthy dose of skepticism. If an offer sounds too good to be true, it likely is. Educate yourself on common investment scams and the red flags that go with them. High-pressure sales tactics, guarantees of high returns with little or no risk, and requests for personal information are just some of them.
Step 2: Informational Hygiene
Think about your digital footprint. Sometimes, our online behavior invites trouble. Review all your accounts and passwords regularly, ensuring they're robust and unique. Here's a big one: never share sensitive information on social media or messenger apps. A seemingly harmless post gives fraudsters the puzzle pieces to access your finances.
Step 3: Verify Before You Trust
Before committing your hard-earned money to any investment, do your due diligence. Verify the legitimacy of the company or individual offering the investment. Check their credentials and registration status with financial regulatory authorities. These unsolicited emails, calls, and texts are the front lines of financial scams. By rejecting these, you're safeguarding yourself from a potential trap.
Red Flags of Investor Fraud
Here's a breakdown of the major red flags that every investor should be aware of:
Why? Many times, investors are to blame, either by sharing too much on social media or trusting the wrong people.
The Reality of Private Investments Fraud
Imagine you're saving money for something big and important, like a down payment for a house. Now, think about someone tricking you and taking all that money away. Scary, right? That's what happened to Bob, whose story can teach us a lot about being careful with our funds.
Bob was getting ready to enjoy his retirement. He wanted to do something smart with his savings. One day, he received a call from a “financial advisor” offering to help him invest in "pre-IPO shares." This man sounded clever and convincing, juggling buzzwords Bob didn’t understand. So he thought, "Why not?" He started by giving $8,000, but soon, he sent a lot more.
When Bob’s daughter Kate heard about the "financial advisor," she sensed something was wrong.” She contacted the FMA (Financial Management Association) and discovered it was a scam. This helped her dad see the truth. But by then, Bob had already given the scammer a staggering $100,000 – more than most people make in a year.
Bob's story isn’t unique. It's a real-life example of the dangers lurking in the world of private investment. When someone you don't know offers to make your money grow quickly, chances are it’s a fraud.
How to Protect Your Finances in 3 Easy Steps
So, how can you ensure your financial safety and outsmart potential fraudsters? Here's some sage advice from our financial experts.
Step 1: Check, Check, Check
Always approach investment opportunities with a healthy dose of skepticism. If an offer sounds too good to be true, it likely is. Educate yourself on common investment scams and the red flags that go with them. High-pressure sales tactics, guarantees of high returns with little or no risk, and requests for personal information are just some of them.
Step 2: Informational Hygiene
Think about your digital footprint. Sometimes, our online behavior invites trouble. Review all your accounts and passwords regularly, ensuring they're robust and unique. Here's a big one: never share sensitive information on social media or messenger apps. A seemingly harmless post gives fraudsters the puzzle pieces to access your finances.
Step 3: Verify Before You Trust
Before committing your hard-earned money to any investment, do your due diligence. Verify the legitimacy of the company or individual offering the investment. Check their credentials and registration status with financial regulatory authorities. These unsolicited emails, calls, and texts are the front lines of financial scams. By rejecting these, you're safeguarding yourself from a potential trap.
Red Flags of Investor Fraud
Here's a breakdown of the major red flags that every investor should be aware of:
- Cold calls. Reputable investment firms typically don't need to seek out investors through cold calls and emails.
- High-pressure sales tactics. If someone pressures you with statements like "This opportunity won't last" or "You must act now," take a step back.
- Guaranteed returns. Be careful with investments that promise guaranteed returns or claim to be 'no-risk.'
