It is not only high profile investors representing Steven Spielberg and Nobel laureate Elie Wiesel who lost sizable holdings in the alleged $50 billion Ponzi scheme run by Wall Street money manager Bernard Madoff. Folks on Main Street are targets of financial fraud, too.
Each year approximately $40 million is lost to investment fraud, according to the North American Securities Administrative Association (NASAA).
“People who get caught up in this are not stupid,” says Steve Weisman, author of The Truth About Avoiding Scams. “Con artists are really just brilliant. They are the only criminals known as artists.”
If you find yourself a victim of investment fraud of any sort, it’s important to contact the Federal Trade Commission, Securities and Exchange Commission or state attorney general. But the best way to handle fraud is to take preventative measures.
Here are some tips:
Find An Advisor
Before discussing an investment with any type of financial advisor, you should obtain some background information first. Organizations such as the U.S. Securities and Exchange Commission and FINRA, the Financial Industry Regulatory Authority, provide access to credentials and prior complaints about companies and advisors that can be viewed online or directly. Records for financial advisors are considered public information and should be received for free, or in some cases, for a small fee. “You may first hear about an investment from someone you trust, maybe a fellow church member or friend,” suggests Weisman. “But when it comes to investments, don’t just trust your instincts, do your homework.” Affinity fraud occurs when scam artists seek out investors in non-financial organizations or affiliations like a P.T.A. or religious group, a place where they have likely already gained your trust.
Get The Right Tutor
Even more important than conducting your own research is finding a knowledgeable tutor. “I’ve seen many clients who are intelligent people, but not sophisticated investors,” says Weisman. Upon researching an advisor and particular investment, seek help from a professional with no conflict of interest, like an attorney, accountant or professional financial planner who can help clarify the mysteries embedded in the fine print. “Most people won’t be able to read the forms (attached to investments) without falling asleep, let alone understand them.” While these services aren’t free, professionals can help you assess the hidden fees and expenses in investments like 401(k)'s and annuities.
Explore Your Options
While conducting your research about the initial investment, its risks and returns, it’s important to keep your options open. “Never look into just one investment,” says Weisman. Doing the necessary homework will hopefully prevent you from falling prey to your emotions, which can sometimes be the driving force behind financial decisions. “When it comes to investments, if it sounds too good to be true, it probably is.”
Portions of this story appeared previously on MainStreet.