The last several years, I have seen an increasing number of people defrauded by investment scams, probably made easier because of all the money everyone is making in the stock market. But before making any investment, you should ask the following 10 questions:
1. Is the investment audited by one of the major international accounting firms? Real investments are audited by one of the large international accounting firms; indeed, a real investment will hold this out as a selling point. On the other hand, a scam investment will not be audited by anyone, or by a small firm nobody has heard of (and may in fact be a sham).
2. Is the investment registered with your state securities commission or with the SEC? Real investments must be registered with your state securities commission, or with the U.S. Securities & Exchange Commission. This is true of offshore investments which are marketed to you in your state — they must be registered as well, and avoid anyone who says they are “exempt” because they are offshore. Avoid unregistered investments.
3. Is the investment listed in the Wall Street Journal, London Financial Times, or similar well known financial publication? Real investments will be listed in a major financial publication, or findable in some other major financial resource. You typically can’t find scam investments in these publications. Beware “CUSIP” numbers as an “authentication” of the investment — anyone can get a CUSIP number for just about anything so this doesn’t help you.
4. Is everything about the investment out in the open? Real investments are completely “transparent”, meaning that you can clearly see and understand each and every step of where your dollars go and how they grow. Scams hide or obfuscate one or more parts of the plan, speak in terms of secrecy, may allude to a “secret banking system” or similar nonsense, and might even require you to sign a secrecy or confidentiality agreement prior to seeing the plan (it will almost always be a scam if you have to sign such a document).
5. Are you allowed to seek independent legal counsel prior to making the investment? Real investments will encourage you to seek independent legal and financial advice prior to making the investment. Scam investments will give you bizarre reasons why you shouldn’t talk to someone, such as “CPAs are trained not to speak of this!”, and they may even require you to sign a secrecy or confidentiality agreement which will discourage you from consulting anyone before making your investment.
6. Is the seller licensed with your state securities commission or with the NASD? Real investments are sold by licensed stockbrokers who are registered both with your state security commission and with the National Association of Securities Dealers. Scam investments are sold by scam artists who are not registered with anyone, or perhaps with some phony-baloney foreign stock exchange (or more recently, “cyber-exchange”).
7. Does the promoter have a good background? A real promoter will be “clean” and you can verify this by hiring a private investigation firm to conduct a basic investigation. A scam artist will often be using an alias, and will often have a criminal background (though not always).
8. Does the investment “make sense”? Avoid all unregistered investments which are “guaranteed” as this is a sure sign of a scam (if the guarantee would be real, it would be registered). Avoid investments which make representations which are unusually high, i.e.,funds and programs which promise to pay more than 50% per year, or promissory notes and CDs which promise to pay more than 10% per year.
9. What does law enforcement say about this investment? Don’t hesitate to call law enforcement, such as your state security commissioner or attorney general, before you invest. A real promoter will have nothing to fear if investigated (and can probably clear it up with a phone call). This is just a part of doing business for them. On the other hand, a scam artist probably will not stand up to this scrutiny.
10. Is it too good to be true? If you have to ask yourself this question, it probably is.
“Murray Priestley has 25 years of commercial and asset management experience having served in board, CEO and senior executive positions with a number of global public and private companies.”