SEC Issues Investor Alert on Warning Signs of Fraud

SEC Issues Investor Alert on Warning Signs of Fraud Courtesy of the SEC

On Monday the Securities and Exchange Commission’s Office of Investor Education and Advocacy issued an Investor Alert listing 10 red flags that could indicate that an unregistered offering is fraudulent, Financial Advisor Magazine reports.

The Jumpstart Our Business Startups Act, or JOBS Act, which was signed into law by President Barack Obama in April 2012, has made it easier to invest in unregistered start-ups and other small companies that are not required to adhere to the usual disclosures and SEC requirements. However, the SEC warns, these lightly regulated offerings can leave advisers and their clients open to fraud, Financial Advisor Magazine reports.

The SEC’s 10 red flags include claims of high returns with little to no risk and investments that are offered by unregistered investment professionals. The agency advises using the Financial Industry Regulatory Authority’s BrokerCheck system and the Investment Adviser Public Disclosure website to check up on an investment professional’s registration status and background.

Aggressive sales tactics should also set off warning bells. The agency stressed that reputable investment professionals and promoters always allow investors the time they need to research an investment and will not push for an immediate decision.

“Scam artists often pitch an investment as a ‘once-in-a-lifetime’ offer to create a false sense of urgency,” the SEC warned. “Resist the pressure to invest quickly and take the time you need to investigate thoroughly before sending money or signing any agreements.”

The SEC advises investors to be wary of salespeople who refuse to provide anything in writing or who provide sloppy or inaccurate documentation. Salespeople who do not make inquiries into the investor’s net worth or income are also suspicious, as federal securities laws limit many private securities offerings to high-net worth or high-income investors.

Other warning signals include mailing addresses that do not correspond to a physical operation or unsolicited investment offers. The SEC also cautions investors to check to make sure the company seeking their investment is listed in state records as being active or in good standing.

Finally, the SEC advises investors to do their homework on investment professionals and the investment itself, taking into account whether the amount of risk involved aligns with their personal investment goals.

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