Protect Yourself from Investment Fraud

The phone rings, and a friendly, energetic-sounding stranger is on the line asking if you have a minute to learn how to triple your money in just six months by investing in gold and silver mines. Or maybe you get an email urging you to buy shares of a company whose stock price is sure to go through the roof. It sounds too good to be true — because it is too good to be true.

Each year, fraud siphons billions from investors, according to the North American Securities Administrators Association. This isn’t new. In the early 1920s, to name one famous example, a con artist named Charles Ponzi fleeced scores of Americans by promising lavish returns from a strange scheme to speculate in international coupons used by people in different countries to send each other return postage. In reality, Ponzi was using new investors’ money to pay off existing investors.

It’s a tactic that criminals still employ. But in today’s world, they have more — and more powerful — ways to reach ordinary people (robocalls, email, TV, social media) and convince them to hand over their money. A 2019 study by fraud experts at the University of Minnesota and AARP found that, compared to investors in general, victims of investment scams tend to be older; male; more frequent stock traders; and more likely to respond to investment pitches in unsolicited phone calls and emails, TV ads or free financial “seminars.”

Investment fraudsters often target older people, whom they view as more trusting than younger generations, less likely to say “no,” and more apt to have tappable assets after a lifetime of working, according to law enforcement, regulators and advocacy groups. In June 2022, for example, federal prosecutors secured their eighth conviction in connection with a multimillion-dollar fraud scheme that preyed largely on older victims, selling stock in a sham company supposedly developing cutting-edge electric and natural-gas cars.

But anyone of any age can be exploited by phony investment schemes — and everyone can take some basic measures to reduce the chances of being defrauded.

No matter where you live, fraud is never far away. Report a scam or search for existing scams near you.

Warning Signs

• A caller who pressures you to send money right away to take advantage of a supposedly once-in-a-lifetime opportunity.
• A caller who uses phrases such as “incredible gains,” “breakout stock pick” or “huge upside and almost no risk!” The U.S. Securities and Exchange Commission (SEC) says such claims suggest high risk and possible fraud.
• Recommendations of foreign or “offshore” investments from someone you don’t already know and trust. Once your money is in another country, the SEC cautions, it’s more difficult to keep watch over it.

How to protect yourself from this scam

Do ask plenty of questions before you make any investment, including:

• Is the financial product registered with the SEC or state securities agencies?
• What are the fees?
• How does the investment company makes money?
• What factors could affect the value of the investment?

Do your homework. If you’re considering investing in a publicly traded company, look up information about its finances and operations in the SEC’s EDGAR database.

Do know who’s handling your investment. Do a background search in BrokerCheck, an online database maintained by the Financial Industry Regulatory Authority (FINRA), a nongovernmental group that watches over securities firms and dealers.

Do be wary of free investment seminars, especially ones that include lunch. The SEC says scammers often figure that if they do you a small favor, you’ll feel obligated to invest.

Do have an exit strategy. FINRA recommends rehearsing some stock lines to cut short a caller’s high-pressure pitch, such as, “I’m sorry, I’m not interested. Thank you.”

Don’t make investment decisions based upon TV commercials, phone calls or email solicitations.

Don’t get dollar signs in your eyes. Con artists like to dangle the prospect of fabulous wealth to distract you from realizing the whole thing is a scam.

Don’t jump on “inside” information posted to social media, chat rooms or forums promoting shares of a company that are certain to go up. It could be a “pump-and-dump” — a ploy to drive up the price artificially, enabling scammers to sell their shares for a big profit before the stock crashes and the remaining investors take a loss.

Don’t believe someone claiming to represent FINRA who offers an investment guarantee — the organization says its officers and employees do not do this. Some particularly audacious scammers pose as FINRA executives to create a false sense of security about an investment and secure an advance fee.

Don’t judge an investment opportunity by a company’s attractive, professional-looking website. These days, crooks can easily create a convincing online facade.

Do you think you have been targeted or have fallen victim to a scam? Contact the AARP Fraud Watch Network Helpline. Call 877-908-3360.

From the AARP Fraud Network

For more information on protecting yourself from fraud, visit MAC’s State Health Insurance Program (SHIP) web page.