Investing For Your Future Monthly Message
Barbara O’Neill, Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
Red Flags of Investment Fraud
The Internet serves as an excellent tool for investors, allowing them to easily and inexpensively research investment opportunities. But the Internet is also an excellent tool for fraudsters. That's why you should always think twice before you invest your money in any opportunity that you learn about online.
Anyone can reach tens of thousands of people by building a web site, posting a message on an online message board, entering a discussion in a live "chat" room, or sending mass e-mails. It's easy for fraudsters to make their messages look real and credible and difficult for investors to tell the difference between fact and fiction.
It's common to see messages posted on the Internet that urge readers to buy a stock quickly. Cold callers often call using the same sort of pitch. Often the promoters will claim to have "inside" information about an impending development about a company’s stock. In reality, they may be insiders or paid promoters who stand to gain by selling their shares after the stock price is pumped up by gullible investors. Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose money.
Don’t be a victim! Protect yourself by recognizing these red flags of investment fraud:
Follow your instincts. The more red flags you observe, the more suspicious you should be about an investment. Does it sound too good to be true? If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an investment opportunity that promises "guaranteed" or "risk-free" returns and watch out for claims of astronomical yields in a short period of time.
Be skeptical of "offshore" or foreign investments and beware of exotic or unusual sounding investments. Also make sure you fully understand an investment before you part with your hard-earned money. Always ask for-and carefully read- a company's investment prospectus. You should also read the most recent reports the company has filed with its regulators and pay attention to the company's financial statements, particularly if they do not say they have been audited or certified by an accountant.
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