It’s becoming increasingly difficult to recognize investment scams. Scammers are using real-life situations, faking the websites of legitimate businesses and sharpening their skills to outwit even savvy investors. Scam artists are experienced at the art of persuasion and know which questions to ask to make you most susceptible to their pitch.
FINRA Investor Education Foundation provides some interesting theories on the science behind some of the most common scam tactics:
The “Phantom Riches” Tactic — dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”
The “Source Credibility” Tactic — trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
The “Social Consensus” Tactic — leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in —and so is my mom and half her church — and it’s worth every dime.”
The “Reciprocity” Tactic — offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now — half off.”
The “Scarcity” Tactic — creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”
BBB also provides the following checklist to keep from being a victim of investment fraud:
No investment is risk-free, but scam artists will try to convince you otherwise. Be wary of individuals who promise a rate of return better than what similar investments are paying or who makes guarantees that the investment will not fail.
Keep copies of all completed forms and agreements.
Get and read all information about the risks, obligations, restrictions and costs of any investment in writing before making the investment.
Make sure you can access your accounts in a timely manner and are aware of all the restrictions and limitations on access.
Know exactly how much the investment will cost with regard to fees, commission, and, penalties, and other charges.
Keep in mind, the more complex the investment, the more wary you should be in investing in it.
Virtually all fraudulent investment schemes involve the sale of unregistered securities. Find out if the security, and the individual offering it are registered by contacting the Texas State Securities Registration Division at 512-305-8300.
For more tips on smart buying, donating and investing, go to www.bbb.org. Also, visit www.saveandinvest.org to view the full article. To report a fraud or scam, call the BBB Hotline at 903-581-8373.