How to Avoid Investment Fraud

How to Avoid Investment Fraud

Core Facts

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According to the SEC, there were 868 cases of financial misconduct in 2016. The good news is that potential victims, and more importantly the professionals trying to catch the bad guys, also have access to high-tech solutions and can use them to their advantage. That, coupled with a recent trend that focuses on financial literacy and fraud prevention, should make you feel a little safer. 

More good news is that the U.S. Government now not only protects, but also monetarily incentivizes whistleblowers. This makes life a lot easier for those good-conscience individuals who want to do the right thing and take down the criminals in their midst. 

But before you rest too easy, financial fraudsters use effective tactics to get people to part with their money. And if you don’t know what they are, you could fall prey to an investment scam.

Verify credentials

Don't fall for a fancy title or the illusion of success. A con man relies on the fact that if they look successful, you won't bother checking their credentials. Investment professionals must register with FINRA, the Securities and Exchange Commission, and/or your state securities or insurance regulator. You can use FINRA BrokerCheck, [] a free online tool to get information on brokers and investment advisers.

Too good to be true

Be skeptical of investment pitches that guarantee a certain return or promise spectacular profits. They are what fraud-fighters call "phantom riches" that you will never see. No salesperson can make those kinds of promises. The reality is that every investment involves risk.

Peer pressure

Remember what you learned on the school yard. Don’t fall for peer pressure. Don't believe claims that "everyone" is in on the deal. Instead, find out why the investment is sound. Remember, affinity frauds are scams that prey upon members of the same social circle, religious group, or ethnic background.

Limited time

If the salesperson tells you that the offer is for a limited time only or that investment opportunities are limited, consider it a red flag. A legitimate investment will still be there tomorrow.

No obligation

Don't invest because the seller gives you something for free. Salespeople count on those freebies to guilt you into buying what they are selling.

Educate yourself

Arm yourself with information. Learn to spot the red flags of investment fraud, so you can protect yourself and your loved ones.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. 

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website:

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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