INVESTMENT SCHEMES ONLINE To reduce your risks from online investment opportunities that may be fraudulent, here are four basic tips:
Take Your Time In Making Investment Decisions. Remember that in any "get-rich-quick" scheme, there's only one person who's guaranteed to get rich quick: the person promoting the scheme.
If you're thinking about pursuing some online investment opportunity, start by recognizing that you need to take your time in making decisions about what you do with your hard-earned money. Sound investing for the long term takes patience, the will to ignore momentary market fluctuations, and a carefully thought-out plan for reaching your investment goals.
Whether you're researching an investment opportunity on the Web, or talking with a broker or someone else who's offering you the opportunity, you should make it a habit to take notes of what you're reading or hearing. The North American Securities Administrators Association (NASAA) publishes an investor's notepad entitled, "When Your Broker Calls, Take Notes!" The forms are printed in notepad fashion so investors can get into the habit of making written records of their conversations with their brokers. The notepad is available from your state securities regulators or on the NASAA website at www.nasaa.org/whoweare/media/Notepad.html.
Research The Potential Investment Opportunity - And Who's Behind It - Carefully. If you're making a major investment decision, here's an easy rule of thumb: Count how many weeks, months, or years it took you to earn that amount of money, and then resolve to spend at least that many days to research the investment opportunity and the people who are promoting or running it.
Several agencies and self-regulatory organizations can give you a substantial hand with your research, at no cost to you:
The SEC's Web site, www.sec.gov, contains a wealth of information about many companies, in at least two principal sources: (1) reports these companies file electronically through the EDGAR system; and (2) the SEC Enforcement Division's online files, which among other things list the persons against whom the SEC has filed civil enforcement actions for securities law violations (and, in some cases, against whom the Department of Justice or state or local prosecutors have filed criminal charges). You can use the built-in search engine at the SEC's Web site to check out names, and see whether you get any hits in the SEC enforcement action listings. The site also contains some excellent lists of questions to ask about any investment opportunity, and a discussion of how to spot signs of online investment scams.
The Federal Trade Commission's Web site, www.ftc.gov, also has an internal search engine, which allows you to look for information on particular individuals or companies involved with your prospective investment, including listings of FTC enforcement actions.
The National Association of Securities Dealers (NASD) allows you to check for some disciplinary history on the broker or company that's touting a particular investment. Go to www.nasdr.com or call the NASD's Public Disclosure hotline at 800-289-9999.
State securities regulators in your state may also have information on the company or its organizers that you can obtain. Check your local telephone listings for the securities regulator in your state, or go to the North American Securities Administrators Association's Web site, www.nasaa.org, for a listing of state and provincial securities regulators in the United States, Canada, and Mexico.
If the potential investment involves commodities, you may also need to check out the Commodity Futures Trading Commission's Web site, www.cftc.gov, and use its internal search engine to check out companies and people. The National Futures Association can also give you information on the disciplinary history of brokers or other commodity professionals, the registration status of firms and individuals, and arbitration and mediation procedures. Call them at 1-800-676-4NFA between 8:00 a.m. and 5:00 p.m. Central Time or go to www.nfa.futures.org.
If the prospective investment supposedly involves an Internet financial institution, go to the Federal Deposit Insurance Corporation (FDIC)'s Online Banks Web pages, www.fdic.gov/bank/individual/online/sspcious.html, and use the FDIC's Financial Institutions Search Engine you find there to see whether the financial institution has a legitimate banking charter and is a member of the FDIC.
When the potential investment is based outside the United States, remember that your money may be even more at risk, as you may have little or no recourse in the event of loss. The United Kingdom's Financial Services Authority allows investors to check out U.K. and European Union-based investment offers at its Central Register (call 01-71-929-3652).
Finally, use one or more of the many Internet search engines - like the ones available on your Web browser - to help you expand your research on the company's background and market performance.
If you use these resources, and find that one or more of the people behind your prospective investment has been subject to legal action, especially for investment offers, it's a very safe bet that the investment is a high risk at best and an outright scam at worst.
Boilers and "Boiler Rooms" Need High Pressure To Do Their Jobs. If someone online is insisting that you invest right away, or telling you that someone else will get the "deal of a lifetime" if you wait, ask yourself at that moment whether you're feeling pressured and uncomfortable. If you are, that's a major red flag warning you away from the investment.
Legitimate businesspeople and brokers don't need to subject you to "high-pressure" tactics to make you commit to an investment decision before you're ready. That's why the operations scam artists run are called "boiler rooms": like steam boilers, high pressure is what they're designed to generate (along with a wide array of lies, half-truths, and deceptive statements).
Even if you're in a chat room or online discussion group where everyone seems to be "just like you," enthusiastic about investing and looking for the next great investment, not everyone who's online at that moment is necessarily just like you. Some of the messages you see may be coming from someone working for the investment scheme's organizers - or even one of the organizers himself - who pretends to be someone else, so they can pressure you in less obvious ways and get you to fall for the scheme.
Check Out The Competition. If someone's promising you returns on investment that are far above what you see in the financial pages of your newspaper or at your local bank, ask yourself how they can possibly guarantee those fabulous returns.
Sometimes it's because, as in any good old-fashioned Ponzi scheme, they're paying older investors with money that newer investors gave them, and they're trying to string out the fraud to rope in as many investors as possible. Sometimes it's because they'll promise you anything, but give you nothing once you've entrusted your money to them.
If, after you've gone through all of the steps listed above, you still feel like the prospective investment is worth considering, talk to a broker, financial adviser, or banker with whom you've done business for a while, and ask whether his or her firm or financial institution can offer you a comparable type of investment with less risk.
The chances are that they'll say no, but they'll be willing to take time with you to walk through the information you have about the prospective investment and point out the risks you may be taking, as well as possible alternative investments that offer more realistic returns.
You lose nothing by consulting an investment professional about any major investment decision - and you stand to lose a lot if you don't.
http://www.justice.gov/criminal/fraud/Internet.htm
