Warning Signs of Securities Fraud

Warning Signs of Securities Fraud

As an investor, securities fraud is a risk that’s important to be aware of. Also referred to as stock fraud or investment fraud, securities fraud is a well-known white-collar crime that takes a variety of forms. In general, the FBI defines securities fraud as any tactic used to deceive investors or manipulate financial markets.

Here are a few common examples of securities fraud according to the FBI:

  • High-yield investment fraud – promise of high return with low or no risk
  • Ponzi/pyramid schemes – collect money from new investors to pay up-stream investors
  • Advance fee schemes – pay fee up-front for promise of higher gains later

Securities fraud can be committed by individuals or organizations. The SEC (Securities and Exchange Commission) and the FBI are the primary investigators in cases of securities fraud. Those convicted of securities fraud face civil and/or criminal penalties that can lead to imprisonment and fines.

In order to avoid becoming a victim of securities fraud, it’s important to be aware of the warning signs. Here are a few of the most common red flags that may indicate an unsafe investment practice. If any of these traits apply to your current or prospective investments, proceed with extreme caution.

Guaranteed Returns

You may like the sound of guaranteed returns, but the reality is that every investment has some associated risk. While it is possible to point to historical returns and attempt to project future returns, there will always be a degree of error in forward-looking returns. If you’re pitched an investment with a guarantee, it’s almost certainly too good to be true.

Time Pressure

Next, keep an eye out for time-sensitive investments. Most legitimate opportunities will allow you to take your time understanding the arrangement and submitting payment. If you’re pressured to make a decision or transfer funds right away, you may be heading towards a scam.

Overly Complex Arrangements

Our next red flag is overly complex arrangements. With some exceptions, most investment opportunities will be digestible by the average person. Legitimate advisors and fund managers have a knack for simplifying investments to make sure clients understand what they’re getting themselves into—it’s their job to help you grasp where your money is going. If you’re asking questions and the opportunity continues to feel especially complex, you may want to reevaluate. (Plus, even if the opportunity is legitimate, you still want to understand where your money is going.)

Pushy Salespeople

Next on our list of warning signs is a pushy salesperson. While salespeople across every industry have a reputation for being pushy and money-driven, the investment space is typically more forgiving due to the nature of the transactions taking place. When thousands (or tens of thousands, or hundreds of thousands) of dollars are on the line, salespeople tend to spend more time making sure investors are clear and comfortable with the opportunity. If you’re dealing with someone who is especially pushy, you may want to think twice about your choice. You can always start by requesting another representative to try to remove this element from the equation. If you’re still being pressured after switching contacts, it’s likely time to step away.

Unsolicited Investment Opportunities

Last on our list is unsolicited investment opportunities. Unsolicited offers are one thing if they’re coming through a friend or colleague, but when you have no connection to the opportunity, you may question why this particular offer is being brought to your attention. Unsolicited offers are often fraudulent because the goal is to involve as many people in the scam as possible. When the scale is at stake, scammers don’t waste time waiting for people to come to them; instead, they’ll push the investment on anyone who will listen.

How to Protect Your Investments

With these warning signs in mind, there are a few best practices to employ to protect yourself. First, make sure to ask questions and do your own research before you embark on a new investment path. It’s crucial that you personally understand the ins and outs of where your money is going and how you’ll see a return. Don’t trust that the person you’re dealing with has your best interests at heart—make sure you’re doing the due diligence yourself. If you’re unsure about any information you come across, consider taking your questions to another trusted advisor or attorney for a second opinion on the situation.

Next, don’t be afraid to request official documents if anything about the situation arises suspicion. Legitimate opportunities should be able to supply a prospectus, an annual report, financial statements, or other official documents. You can also call the state where the company is incorporated to make sure an active annual report is on file. If any of these documents are unavailable or seem illegitimate, you may want to back out of the investment.

Lastly, make sure to regularly monitor your investments for discrepancies. Watch for unauthorized trades, large swings in account balances, and changed passwords or contact information. The closer you watch your assets and accounts, the more likely you’ll be able to take timely action if something goes wrong.

If you do suspect that you’ve fallen victim to fraud, file a complaint with the SEC, your state securities regulator, or a law enforcement agency as soon as possible. Make sure to document your concerns and any evidence you have to suggest that fraud occurred. These organizations will work with you to investigate the claim and determine an appropriate course of action.


As an investor, it’s your job to take every precaution to protect your funds. Don’t fall victim to the many forms of securities fraud that wipe out people’s savings on a daily basis. Instead, familiarize yourself with the tips above and take due diligence seriously when you’re provided with a new opportunity. After all, at the end of the day, you’re the only one who can protect yourself from fraud. Take this information to heart, and your money should be safe and sound. Visit us. Thank You.

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