How to succeed at avoiding scams

Avoiding scams by watching for:

Enticing words

Words like "high return", "guarantee", "no risk", or "limited offer" may be red flags. No financial investment is risk free. A high rate of return does not necessarily mean greater risk but it certainly means greater care and due diligence before proceeding.

   Don't ever rely solely on what you read online in an online newsletter or bulletin board posting to make an investment decision.

Avoiding scams by watching for:

Promotional material for an investment opportunity that suggests that most of your revenue will come from recruiting.

  Don't get involved. It's likely to be a pyramid scheme. Avoiding scams where earnings don't come from the sale of a legitimate and needed product or investment will keep you from being burnt and probably preserve your friendships.

Avoiding scams by watching for:

E-mail Spams

   Because junk e-mail (spam) is so cheap and easy to create, con-artists increasingly use it to draw in investors for bogus investment schemes. It is also used to spread false information about a company or particular investments. It can easily be made to seem that many different people are enjoying the success of an investment when it is really a complete sham. Spam allows the unscrupulous to target many more potential investors than cold calling or mass mailing ever could. Avoiding scams such as these is a constant battle because by using a bulk e-mail program, spammers can send personalized messages to thousands and even millions of Internet users at a time all over the world.

   Also remember that e-mail is not secure. Avoiding scams through email can be achieved by firstly having a good filter on your mailbox. Also, never give out passwords, credit card information, or personal information unless you are sure the server is secure (you should see https at the beginning of the address).

Avoiding scams by watching for:

Bulletin Boards

   Forums, newsgroups, usenet, and web-based bulletin boards – have become an increasingly popular forum through which investors are avoiding scams by sharing information. Bulletin boards typically feature "threads" made up of numerous messages on various investment opportunities.

   However, avoiding scams this way is a double-edged sword. While some messages may be true, many turn out to be bogus – or even scams. Fraudsters can easily pump up a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.

   You never know for certain who you're dealing with or whether they're credible. Many bulletin boards allow users to hide their identity behind multiple aliases. People claiming to be unbiased observers who've carefully researched the company may actually be company insiders, large shareholders, or paid promoters. Avoiding scams this way only works when the forum is a closed membership forum or you know the people. Even then they may not be secure. A single person can easily create the illusion of widespread interest in a small, thinly-traded stock by posting a series of messages under various aliases.

   As with email it can easily be made to appear that many different people are speaking highly of an investment when it is really a con designed to give people a false sense of security and get them to invest. Avoiding scams by watching for:

Online Investment Newsletters

   There is a plethora of investment newsletters on the Internet. While some are subscription-based many offer investors free, seemingly unbiased information about companies or investments. While many are legitimate, some online newsletters are tools for fraud.

   Some online newsletters are written by people who are paid to promote particular companies or investments. Though this is not illegal, federal securities laws require the newsletters to disclose who paid them, how much, and in what form. Many fraudsters fail to do so, instead, lying about the payments they received, their independence and so-called research, and their track records.

   They can pose as sources of unbiased information, claiming independent research. Others spread false information or promote worthless stocks. Their masquerade is to convince investors to buy or sell particular stocks or buy into certain investments so the newsletter promoters and investment providers can profit at the investor's expense. They can sometimes drive up the price of the stock with their baseless recommendations and then sell their own holdings at high prices and high profits.

Does the newsletter receive payment to recommend the stock and, if so, what it received and from whom.

Be suspicious if they don't specifically disclose these items but instead make general statements like: "From time to time, this newsletter may receive compensation or hold stock from companies we write about."

Think twice about newsletters that bury their disclosures or put them in tiny, hard-to-read typeface.

  
• Is this investment product regulated or registered with the SEC and my state securities agency?
  
• What return can I expect on my money and when?
  
• Does this investment match my investment goals?
  
• How will this investment make money? (Dividends? Interest? Capital gains?)
  
• What are the total fees to purchase, maintain, and sell this investment?
  
• After all costs, how much does this investment have to increase in value before I break even?
  
• How easy would it be to sell if I needed my money right away?
  
• What are the specific risks associated with this investment?
  
• What will be the effect of changing interest rates, economic recession, high competition, or stock market ups and downs?
  
• Where can I get more information about this investment?
  
• How frequently do I get statements or updates on my investment?

  
• How long has the company been in business?
  
• Where is the company incorporated?
  
• Is the company making money?
  
• Has the management much experience and been successful in the past in making money for investors?
  
• Can I get the latest reports filed by the company with the SEC: a prospectus or offering circular, or the latest annual report and financial statements?
  
• What is your investment philosophy?
  
• Are you registered with the proper authorities?
  
• What training and experience do you have and how long have you been in the business?
  
• Can you provide me with some names and telephone numbers of your long term clients?
  
• What other firms have you been registered with?
  
• How do you get paid: By commission? Amount of assets you manage? Another method?
  
• Who actually pays you?
  
• Are you paid by the transaction, or a flat fee regardless of how many transactions I make?
  
• Do you make more if I buy this stock (or bond, or mutual fund) rather than another? (The implication here being...would your recommendation be the same if you weren't making extra money?
  
• Is there a record of any complaints about this person?

  
• How has this fund performed over the long run?
  
• What specific risks are associated with this fund?
  
• What type of securities does the fund hold?
  
• How often does the portfolio change?
  
• Does this mutual fund invest in any type of securities that could cause the value to go up or down rapidly in a short period of time?
  
• How does the fund perform compared to other funds of the same type or to an index of the same type of investment?
  
• How much will the fund charge me when I buy and sell my shares?
  
• What other ongoing fees are charged?
  
• Is the investment registered or regulated?

Thorough due diligence, common sense, an understanding of the techniques used by con-artists, and taking note of tips on websites such as this and others mentioned are the tools to avoiding scams.

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• Slow down, ask questions, and get written information. Take notes and keep records of what you are told. Print a hard copy of any on-line solicitation that you are considering. Record the Internet address (URL) and note the date and time that you saw the offer.

  

• It doesn't matter if you are a beginner or have been investing for many years, it's never too early or too late to start asking questions. It's almost impossible to ask a dumb question when it comes to investing your money. Don't feel intimidated.

  

• If you are being asked to entrust your money to someone else whom you don’t know, be suspicious.

  

• If the offer of an "opportunity" appears too good to be true, it probably is. The investment that sounds so good may be a figment of a conman's imagination, or they may be paid to promote it.

  

• Know who you are dealing with. Don't assume that people on-line are who they claim to be. Independently investigate the company, broker or investment opportunity. Visit the business location if possible, check with the Better Business Bureau and consult with local banks, an attorney or the police. There are also professionals who will help you do due diligence for a fee.

  

• Be wary of businesses that operate out of post office boxes or mail drops and do not have a street address, or of dealing with persons who do not have a direct telephone line, who are never "in" when you call, but always return your call later.

  

• Follow common business practice. Be particularly cautious of someone who refuses to provide references from his present customers or a last name and a contact number for some referees?

  

• Be suspicious of any investment where you have to make up your mind and send in your money very fast. An offer that pressures you to make a decision in a short period of time is to prevent you from asking about the company and doing a thorough due diligence. Ask for at least 24 hours to consider the investment.

  

• Be wary of deals that require you to sign non-disclosure or non-circumvention agreements designed to prevent you from independently verifying the credentials of the people with whom you intend to do business. Con artists often use non-circumvention agreements to threaten their victims with law suit if they report their losses to law enforcement.

  

• Avoid anyone who encourages you to break the laws of any nation or where the investment relies on complete secrecy. Unlawful activity gives the con-artist leverage against you, ensuring your silence when he steals your money.

  

• Remember that most messages posted on Internet forums are done anonymously and, as such, have limited value. The same person can post several messages under a variety of aliases to create the appearance that others support their views. It's easy for fraudsters to make their messages look real and credible but it's nearly impossible for investors to tell the difference between fact and fiction.

  

• Trust your gut. If your "little voice" is warning you to beware, don’t get involved until you feel comfortable. Often greed can overwhelm common sense and this is always a mistake.

   With the right guidance, you will be well on your way to utilizing the many opportunities that await you offshore.

   Remember... INVESTigate Before You INVEST!

Check out these websites for more information on avoiding scams:

FBI Fraud Alert.

National Fraud Information Center.

Goldhaven Offshore Information... US$60pa membership.

The Nigerian 419 Scam.

The Securities Exchange Commission website.

Quatloos.A good public educational website aimed at help in avoiding scams of a wide variety, including “prime bank” frauds, exotic foreign currency scams, offshore investment frauds, tax scams, “Pure Trust” structures and more.

Fraudaid.A good site for victims and to help keep from being a victim by avoiding scams in the first place.

Worldwidewarning This site provides warnings regarding potential or proven fraudulent businesses. It is not a bad site to check for avoiding scams.

Scamwatch The information on this site has been prepared by the Australian Government in collaboration with fair trading and consumer protection agencies across Australia.

Internet ScamBustersis an e-zine which exposes scams being perpetrated over the Internet and consequently affect both the domestic and international cyber-arenas.

You are here:
Avoiding scams - How to go about avoiding scams and being caught up in a scam onshore and offshore.

Offshore Scams and Rip-offs - an introduction to the biggest offshore investing danger.

Common scams - a description of the main types of scam commonly perpetrated offshore and onshore.

Spotting a scam - How to recognize a scam. Common traits of offshore scams.

Spotting a Scam Business - The features of businesses and organizations which are out to take your money while under the guise of a legitimate business operation.

Spotting a Con-artist - How to recognize the typical characteristics of the conman after your money.

Reporting scams - Where to report scams and bodies that can be of assistance.

Information scams - a warning about a type of scam that targets small amounts from offshore information seekers.