Avoid Investment Scams

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The investment fraud perpetrated by Bernard Madoff seems almost beyond belief – a massive Ponzi scheme that could cost investors up to $50 billion* – and he's just one among a number of high-profile con artists in the news.

Even if you don't have millions to invest, you could be the target of investment scams. Beware of claims such as:

High returns with little or no risk. If you receive an investment pitch that promises above-market yields and safety, red flags should be flying. Low-risk investments generally offer modest returns. For example, a recent $8 billion fraud duped investors who were promised annual double-digit returns on "safe" certificates of deposit at an off-shore bank.** Lesson: There is no free lunch. High-yielding investments tend to have correspondingly higher risk.

I'm letting you in on a secret. Some scammers take advantage of an individual's tendency to trust people who share their religion or ethnicity to convince them to invest in bogus securities. Others prey on the egos or insecurities of people by suggesting they are being offered the chance to invest with an elite group or in an exclusive deal. Lesson: If the investment is that exclusive or hush-hush, it may be under the radar of regulators.

You must act now. Unscrupulous individuals may use high-pressure sales tactics, insisting that you'll "miss out" if you don't invest now. Lesson: Don't be rushed into a decision. Before investing or sending money, read the prospectus and take time to decide whether the investment is suitable for your financial goals, timeline and risk tolerance.

We'll recoup your losses. Con artists who capitalize on the concerns of investors who've lost money in the stock market may claim that, for a fee, they'll help get your money back. If your brokerage firm has failed, your money is missing and the firm is a member of the Securities Investor Protection Corporation (SIPC), the SIPC may be able to recoup some or all of your money. In some cases, you may be able to sue a broker or pursue arbitration through FINRA if you were sold an unsuitable investment or if fraud were involved. However, no corporation or agency will reimburse you for investment losses that were simply the result of market forces. Lesson: Investments carry risk, including the possible loss of the principal amount invested. Don't throw good money after bad by falling for an investment-loss-recovery scam.

Protect Yourself

Finally, be sure to guard your personal and financial information from unauthorized use. Don't provide account or Social Security numbers over the phone to unsolicited callers who are trying to sell you an investment. Never respond to a "phishing" e-mail that requests personal or account information.

* Source: Business Week, Feb. 17, 2009.
** Source: InvestmentNews.com, Feb. 22, 2009.