Financial Fraud and Investment Scams: Reducing Your Risk

Financial fraud and investment scams are difficult to prevent. Scams are changing every day – and the tools used to target and deceive victims are becoming more and more sophisticated. However, there are a number of tips and tricks that you can use to educate and protect against financial fraud.

Understanding Persuasion Techniques

The first thing you can do to protect yourself against an investment scam is to learn how to recognize common persuasion techniques that scammers use. Scammers capitalize on the vulnerability of their victims – they often target people who have suffered a recent physical, emotional or financial setback and are looking for a quick fix. They promise “phantom riches” that often sound too good to be true – and generally are. Scammers will also try to build credibility with their victims by offering false or misleading credentials, or leading their victim to believe that others just like them have already bought in to the investment and profited. Some scammers will even offer immediate rewards (lower commission, a free lunch or dinner, etc.) in return for a large investment. Other common persuasion techniques include “limited time offers,” which pressure victims to act quickly without taking the time to research the investment. Likewise, with “affinity scams” the scammer uses a common denominator such as a church or community group affiliation to gain trust and credibility. If you are approached by any kind of financial “professional” or investor who uses these techniques, be sure to research their credentials thoroughly before making any kind of commitment or divulging personal information.

Turn the Tables on the Scammer

Research shows that one of the most effective techniques for dissuading scammers is to turn the tables and begin questioning them. The following techniques can help you spot a scammer, and can also help you scare them away.

  1. Research the Investment: Scammers will often pressure you to make a decision on the spot. Just say no. Take your time and do your research, real investments won’t go away overnight.
  2. Ask Questions: Ask for registration information, credentials, and licensure. Then take the information they gave you and confirm it with the appropriate organizations such as the SEC and state securities regulators.
  3. Get Advice: Talk to a family member or trusted financial professional before making any commitments or divulging personal or financial information.

Know the Common Scams

While scammers are constantly developing new ways to defraud people, there are some common scams you can be on the look out for:

  1. Canadian Advance Fee Loan Scam
  2. “Bank Examiner” Scam
  3. Telemarketing Fraud/Demand Draft Scam
  4. Fake Check Scam
  5. Charity Scams (be sure to check the credentials of any charity before making a donation)

Even the most intelligent and educated professionals can be tricked by sophisticated investment scams. For this reason it is very important to do plenty of research before making any financial investments. There are many resources available to help with this research, including:

If you believe you have been the victim of an investment fraud, help is available. Contact:, 207-737-0900