Avoid Fraud

Even if you have never been subjected to an investment fraudster’s sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the money is"—and that means targeting older Americans who are nearing or already in retirement.

Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you've been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.

To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common 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."

Protect yourself with these strategies:

  • End the conversation. Practice saying "No." Simply say, "I'm sorry, I'm not interested. Thank you." Let them know you'll think about it and get back to them. Have an exit strategy so you can leave the conversation if the pressure rises.
  • Turn the tables and ask questions. Before you give out information about yourself, ask and check.
  • Talk to someone before investing. Be extremely skeptical if the salesperson says, "Don't tell anyone else about this special deal!" A legitimate professional will not ask you to keep secrets. Even if the seller and the investment are registered, discuss your decision first with a family member, investment professional, lawyer or accountant.
  • Take your name off solicitation lists. To reduce the number of sales pitches you receive, use the Federal Trade Commission’s National Do Not Call Registry.

FINRA offers an array of information and resources to help you outsmart investment fraud.

  1. Red Flags of Fraud
    Knowing the important warning signs of financial fraud puts you in charge.
  2. Ask and Check
    Ask the right questions and verify the answers before you work with an investment professional or buy an investment product.
  3. Investor Insights
    Don’t be taken in by these frauds and scams. Learn how to protect yourself and your money.

More

  • The Important Role Customers Play in Assisting FINRA in Investigations
    When contacted by FINRA, please speak with us—with your help, we may be able to pursue disciplinary action against a firm or broker; and if you have a concern about a broker or brokerage firm, please reach out to us directly.
  • Risk Meter
    Use our Risk Meter to see whether you share characteristics and behavior traits that have been shown to make some investors vulnerable to investment fraud.
  • Scam Meter
    In just four questions our Scam Meter will help you tell if an investment you are thinking about might be a scam.