How to Avoid Financial Fraud

Editor’s note: As we get older, having enough money becomes even more crucial for a number of reasons: to have a comfortable retirement and to be able to pay for health expenses and long-term care. Financial fraudsters prey on just those concerns, and trusting the wrong person can be catastrophic. Here, the Securities and Exchange Commission (SEC) offers some tips on how to avoid financial disaster:

Seniors  are  particularly  vulnerable  to  tactics  of  scam  artists  who are “nice” or attempt to develop a false bond of friendship.  Scam  artists  prey  on  seniors  who  are  polite  to  others  and have difficulty saying “no” or feel indebted to someone who has provided unsolicited investment advice.


Ask questions and check out the answers. Fraudsters  rely  on  the  fact  that  many  people  simply  don’t  bother to investigate before they invest. It’s not enough to ask a promoter for more information or for references—fraudsters have  no  incentive  to  set  you  straight.  Savvy  investors  take  the time to do their own independent research and talk to friends and family first before investing. Make sure you understand the investment, the risk attached, and the company’s history. And remember, if the product sounds too good to be true, it is!

Research the company before you invest. You’ll want to fully understand the company’s business and its products or services before investing. Before buying any stock, check out the company’s financial statements by using the SEC’s EDGAR database at  or contact your state securities regulator. Remember that unsolicited emails, message board postings, and company news releases should never be used as the sole basis for your investment decisions.

Know the salesperson. Spend some time checking out the person touting the investment before you invest—even if you already know the person socially.  Always  find  out  whether  the  securities  salespeople  who contact you are licensed to sell securities in your state and whether they or their firms have had any troubles with regulators or other investors. You can check out the disciplinary history of brokers and advisers quickly—and for free—using the online databases of the SEC and the Financial Industry Regulatory Authority (FINRA). Your state securities regulator may have additional information.

Never  judge  a  person’s  integrity  by  how  he  or  she  sounds.  Successful con artists know how to sound professional. They can  make  even  the  flimsiest  deal  sound  like  a  “sure  thing.”  Con  artists  know  that  the  appearance  of  professionalism  combined  with  polite  manners  or  overtures  of  friendship  may lead many older investors to accept their advice.


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