Avoid Fraud

Investment fraud is nothing new, and chances are good that a scammer has targeted you or someone you know. Advances in technology have made investing more accessible than ever. Unfortunately, those same advances not only have made it easier for bad actors to reach a wider audience, but they can also make it harder for investors to distinguish legitimate investment products and platforms from those that are fraudulent. 

You might think you’d never become a victim of a financial scam, but the truth is that scammers are trained manipulators. Everyone is at risk. 

Scammers often create high pressure scenarios or play upon your emotions to entice you to buy. They might also work to gain your trust over time, counting on the strength of the relationship to earn your investment. So it’s important to keep your guard up and educate yourself about the red flags of fraud and how to protect yourself. Learning to recognize scammers’ techniques can be your best defense.

Recognize Common Tactics

Though their methods of contact and the types of investments they pitch have evolved, many of the persuasion techniques scammers use remain consistent. These tactics might look familiar—some legitimate marketers across industries might use them, too. But the bad actors take things to a different level, going beyond persuasion to outright pressure and manipulation. They attempt to exploit their targets’ potential vulnerabilities and use deceit to hide their ill will. Here are some common tactics to watch out for:

• The "Phantom Riches" Tactic – Scammers dangle the prospect of wealth, tempting you with promises of spectacular and enticing returns. They might use terms like “guaranteed” or “risk-free,” which are unrealistic goals for any investment. "This crypto token is a can’t miss opportunity—you’ll triple your investment, guaranteed.”
• The "Source Credibility" Tactic – Bad actors often try to build credibility by claiming to be with a reputable firm or to have a special credential or experience. They might even impersonate legitimate registered representatives. "Hi, it’s [established financial professional]. You’re invited to join my exclusive WhatsApp Investment Club and get the latest hot stock tips!"
• The "Social Consensus" Tactic – Using this tactic, scammers might lead you to believe that other savvy investors have already purchased what they’re selling. They might name-drop well-known individuals or cite an impressive number of people who have invested and made a profit. "This stock is about to take off—it’s all over social media as the next hot buy."
• The "Reciprocity" Tactic – They might offer to do a small favor for you in return for your much larger investment. "Join me for a free meal to hear secret stock tips only the professionals know.”
• The "Scarcity" Tactic – Scammers create a false sense of urgency by claiming there’s a limited supply available or not much time to act. "This window is closing because the share price will increase fast, so I'd invest today if I were you."

Protect Yourself

Knowing the warning signs of fraud and being prepared to respond puts you in charge. Here are some actions you can take to protect yourself—and your money:

• End the conversation. Develop an exit strategy and practice saying "No." You can simply say, "No, thanks, I'm not interested." Having a response ready in advance can make it easier to leave the conversation if the pressure rises. And if you receive an unsolicited investment pitch, don’t respond.
• Turn the tables and ask questions. Before you give out information about yourself, get information about the person asking for your investment. Use BrokerCheck to see if they’re properly registered, and ask for the specifics about their background and the product they’re selling.
• Talk to someone before investing. Scammers often pressure you to invest right away, but financial decisions shouldn’t be made in a rush. Real investments will still be there tomorrow. Discuss your decision first with a trusted family member or friend or an investment professional, especially if the pitch is unsolicited or confusing and even if the seller and the investment seem legitimate. 
• Minimize your initial engagement. To reduce the number of sales pitches you receive, use the Federal Trade Commission’s National Do Not Call Registry. While this might not stop the scams, it will reduce calls from legitimate marketers and can be a clue to a scam when the calls come through. Don’t answer calls from numbers you don’t recognize or respond to unexpected texts, emails or social media messages from strangers—even seemingly innocent or misdirected messages often lead to financial scams.

FINRA offers an array of information and resources to help you outsmart investment fraud. Read our Investor Insights articles to stay informed about new or complex products, scams and other investing issues. 

If you have information about potentially fraudulent, illegal or unethical activity, submit a regulatory tip. You can also report cyber-enabled frauds and scams to the FBI’s Internet Crime Complaint Center (IC3).

And if you believe you've been treated unfairly or suspect misconduct by a brokerage firm or registered financial professional, file a complaint.

Learn more from the Federal Trade Commission about scams related to money-making opportunities and investments.