How to Avoid Investment Scams

Are you taking sufficient measures to educate and safeguard yourself against financial scams? Unfortunately, criminals are constantly refining their tactics, making it crucial to stay informed and exercise due diligence when dealing with your hard-earned money.

National and state-run organizations regularly publish data on prevalent scam types that affect the general public. We are all familiar with phone, email, and mail scams that attempt to imitate well-known companies, but in 2023, emerging technologies such as cryptocurrencies and the "Metaverse" have become the most common and dangerous themes, accounting for 62% of reported scams1. Cryptocurrencies, also known as digital currencies, present unique challenges due to their anonymous nature and untraceable transactions. These factors make it particularly difficult to verify the legitimacy of individuals and report scams to relevant authorities, ultimately making fund recovery nearly impossible.

Scammers often target emotions such as the fear of missing out (FOMO), greed, and emotional intimacy along with creating a sense of urgency. They are exploiting social media platforms and dating sites more frequently than ever to establish rapport with their victims. In fact, approximately 46% of scams involve emotional manipulation or relationship-building mechanisms1. It is essential to recognize that scams often begin subtly and may appear harmless until it is too late. Scammers typically employ tactics unrelated to the actual thing they are “selling” and downplay the need for thorough due diligence. They may even employ jargon or utilize research from different, legitimate investments to present convincing and professional materials like videos, phone calls, pamphlets, and webinars. That is why it is always important to do your own research and get a second professional opinion from someone you trust.

Common messaging for scams can be similar to legitimate investments and have to do with economic factors like hedging against inflation or beating the stock market. While legitimate products exist that can act as hedges against inflation or beat the stock market, fraudulent actors often go a step further, claiming to eliminate all economic risks from their investments. They also promote the notion of small investments yielding significant returns, commonly referred to as "get rich quick" schemes. Guarantees should also always raise red flags, particularly when they reference specific returns or timeframes. Remember, all investments carry a certain level of risk, and scammers are good at making it seem otherwise. Scammers tend to exploit uneasy economic periods when people naturally seek better performing or more secure investments, making certain returns and guarantees more appealing.

It is crucial to remain vigilant for inconsistencies in the information provided or the sources presenting it. Additionally, legitimate marketing materials, sales pitches, or other resources must disclose essential historical information about the investment, as well as the individuals, organizations, or companies involved. Legitimate parties must also be registered with national or state regulatory bodies such as the Secretary of State in Indiana or the federal Securities and Exchange Commission (SEC). Prior to making any investment decisions, the Secretary of State in Indiana strongly encourages the public to ask questions, conduct thorough research, and reach out to the Indiana Securities Division at 317-232-6681 for further information about a potential scam. The SEC can be contacted at 1-800-SEC-0330, or through their websites www.sec.gov or www.sec.gov/complaint/select. Additionally, you can use the national Broker Check database (https://brokercheck.finra.org/) to verify the credentials of individuals and firms.

Registered parties undergo qualification assessments, background checks, and periodic inspections by federal or state authorities, including scrutiny of their books and records. These measures ensure transparency and accountability within the financial industry, protecting investors from potentially fraudulent activities. Recently, Charles Schwab alerted advisors that scammers are sending letters that appear to be from legitimate banks and investment companies with real logos, employee names, and job titles. However, they have illegitimate contact information or return addresses in order to collect investment account and banking information from their victims. While action is continuously being taken against these bad actors, it is hard to stay ahead of them. So, it is always recommended that you double check the legitimacy of any contact information or request you get. The best ways to verify if contact information is legitimate is by checking it against phone numbers available to you by logging in to your account or against paperwork you have from the past that you know is legitimate.

By staying informed, remaining vigilant, and doing your due diligence, you can enhance your scam awareness and protect yourself from falling victim to financial scams. Safeguard your hard-earned money by taking proactive steps to verify information, consult reputable sources, and report any suspicious activities to the appropriate authorities.

- Kyle McCune, CFP®, Worley Erhart-Graves Financial Advisors

1 “NASAA HIGHLIGHTS TOP INVESTOR THREATS FOR 2023” https://www.nasaa.org/67918/nasaa-highlights-top-investor-threats-for-2023/