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SEC, FBI Identify Common Types of Fraud and Ways for Investors to Protect Themselves

January 25, 2017 Blog

An unfortunate reality of being an individual investor is that you must constantly be aware of the risk of fraud. While many fraud schemes target specific groups such as inexperienced or elderly investors, cases like the Bernie Madoff scandal show that even sophisticated investors can fall victim to complicated scams designed to siphon their hard-earned funds.

The Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI) and other state and federal authorities regularly issue alerts warning of fraud schemes targeting individual investors. The following are some of the most common types of scams, the warning signs of these scams and some steps investors can take to avoid becoming victims of fraud.

SEC: 15 Common Types of Investor Fraud

The SEC has identified 15 specific types of investment fraud scams used to target individual investors:

  • Affinity Fraud
  • Advance Fee Fraud
  • Binary Options Fraud
  • Commodity Pool Fraud
  • Foreign Currency Trading Fraud
  • High Yield Investment Programs
  • Internet and Social Media Fraud
  • Microcap Fraud
  • Ponzi Scheme
  • Pre-IPO Investment Scams
  • Precious Metals Fraud
  • Pyramid Schemes
  • “Prime Bank” Investments
  • Promissory Notes
  • Pump and Dump Schemes

You can read more about each of these types of fraud on the SEC’s website,

SEC: Red Flags for Investment Fraud

On, the SEC also outlines many of the common red flags of fraud scams targeting individual investors. These red flags include:

  • Inflated Performance Claims – “If it sounds too good to be true, it is.” The SEC warns investors to be wary of any investment offering returns substantially above those of well-known indexes, as well as claims of “incredible gains,” “huge upside” and limited risk.
  • Guaranteed Returns – In the world of investing, there is no such thing as a guaranteed return. “Every investment carries some degree of risk, which is reflected in the rate of return you can expect to receive.” The more you are promised, the higher the likelihood the opportunity is a fraud.
  • High-Pressure Sales Tactics – Another hallmark of an investment fraud scheme is the hard sell. If you are pressured to invest before you miss out on an opportunity or to send money over the phone, there is a good chance that you are being targeted in a fraudulent investment scam.

FBI: Tips for Avoiding Investment Fraud

In addition to watching out for these and other red flags, the FBI offers several recommendations for individuals considering investments with unfamiliar brokers and advisors. Here are some of the FBI’s tips for avoiding investment fraud:

  • Do not rely solely on brokers’ and advisors’ websites. Check third-party sources to see if you can corroborate the claims made on their websites.
  • Do your homework, and “[d]on’t invest in anything you are not absolutely sure about.”
  • Be particularly cautious about unsolicited offers for investment opportunities, including those received via email.
  • Be wary of any offshore opportunities and dealing with individuals and companies located overseas.
  • Make sure you thoroughly understand all of the applicable terms and conditions before you invest.

For more information on how to spot and take action against investment fraud, visit our Resource Center.

Contact an Investment Fraud Attorney at Zamansky LLC

If you believe that you may have been targeted in an investment fraud scam, you can contact Zamansky LLC to learn more about your legal rights. For a free and confidential consultation with one of our experienced attorneys, call (212) 742-1414 or request an appointment online today.