September 30, 2013

10 Things I Know About ... Avoiding Investment Scams

Ainsworth

1. Ask for Audited Statements

Ask to see financial statements on the investment that are audited by a CPA. If you see the statements, call the CPA and see if the CPA firm really exists.

2. Act on Your Own

Con artists often gain the trust of one member of a group (such as religious, associations or clubs) and use that to pull in the other members. Resist the social pressure to follow along just because everyone else is.

3. The Market Sometimes Wins

No investment always beats the stock market; they all have down periods. Those who invested with Bernie Madoff would have been wise to have known this.

4. Beware Inside Knowledge

It's illegal to buy and sell stocks based on insider information. It's called insider trading. Anyone pitching that investment angle is breaking the law and so will you if you buy or sell securities based on that information. Besides, how do you know if what they tell you is truthful information? There's no way to verify it.

5. Proof in Promissory Notes

All promissory notes are securities and must be registered with the state or federal government. Ask for proof of registration.

6. Watch for Unlicensed Sales Reps

All securities sales reps must be licensed with the state. Check with the Massachusetts Secretary of State's Securities Division.

7. Beware of "High Return, No Risk"

A high return is actually the reward for taking a lot of risk. "No-risk" investments actually have low returns.

8. Duck Unsolicited Proposals

If the investment approach arrives by email, by phone at night, by marketing letters or even by a knock on your door, run the other way as fast as you can.

9. Be Clear on How It Works

If you can't understand the idea, it's not because you aren't smart it's because your brain is becoming confused by a "make believe" investment.

10. Paperwork First; Pay Later

All checks for investments should be made out to an investment company, never an individual. Do the paperwork before you fork over your money.

Bob Ainsworth is chief financial officer of New England Business Media, the parent company of the Worcester Business Journal.

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