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5 tactics securities fraudsters use and 4 ways to defeat them

On Behalf of | Feb 13, 2023 | Securities Fraud |

It doesn’t matter that you’re a savvy investor. It doesn’t matter if you’re educated, if you’re smart or if you’re self-reliant. In fact, if you’re nearing or at retirement age with substantial assets, you may be just who securities fraudsters and pyramid schemers are looking for.

After all, fraudsters and schemers go where the money is. And fraud works. Con men are good at getting people to believe them. Even smart, savvy, educated people are taken in by securities fraudsters, but you don’t have to be. Here are five common tactics fraudsters use to reel you in, according to the Financial Industry Regulatory Authority (FINRA):

Promises of great income or huge returns. The first step to getting you to invest in an otherwise questionable scheme is to convince you that riches are to be had.

Claiming special credentials or experience. Fraudsters need you to believe their claims. How better than to tout their amazing credentials?

Citing testimonials or endorsements that could be fake. You’re more likely to invest in the scheme if you think other people you trust are doing so.

Offering a small favor in return for a big investment. For example, they might offer to slash their commission if you agree to invest now.

Claiming a limited supply. The more urgent you feel, the better, as far as fraudsters are concerned. They want your money now, before you come to your senses. They may create a false sense of urgency to get you to sign up.

Those five tactics are meant to work on your emotions and decision-making. They are all hard-sell tactics, but not all of them are illegal, unless they’re materially misleading or false. How do you find out if what’s being offered is a solid investment or nothing but smoke?

Four strategies to respond to a potential securities fraud

Practice in advance. Fraudsters are relying on your emotions to get out of hand, and they naturally will. Practice what you might say if someone offered you a great investment opportunity. In particular, say you need time to think about it. Practice saying “no” if you feel any pressure.

Ask questions. Ask the person to back up their claims. Take the time to check their credentials from the original source, such as a college or investment firm. If anything about the proposal seems shady, follow up with detailed questions.

Get a second opinion. If the salesperson opposes this – especially if they want to keep the opportunity a secret – be extremely skeptical. The point is to discuss the situation with another trusted person. As you do, you will begin to see any holes in the proposal.

Fight back. If you believe you have been defrauded, there may be recourse. If the seller is registered with FINRA, you may be able to file an arbitration complaint against them. This could result in the return of some of your money, sanctions against the investment professional, or other benefits.

If the fraud was perpetrated by someone who is not registered with FINRA, you may still have options, such as reporting the person to the SEC and local law enforcement. It’s a good idea to talk to a lawyer who has experience handling securities fraud claims.

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