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  • Bob Brooks

Be Careful - Investment Scams Are All around


It has always been interesting to me. When the market is hot, investors tend to get complacent. A complacent environment is a perfect backdrop for scams. For whatever reason, scams fly under the radar for a long time as scammers just don't get noticed.

You have to be careful because scams are all around us. Fortunately, they have similar characteristics. If you are paying attention, you can spot one a mile away. I have written pieces like this in the past. However, I wanted to look at the two big red flags that should be at the top of the list when trying to identify a legit investment versus a con job.

Investment Advisor that is not Registered

Advisers need to be registered with the SEC or FINRA (two regulatory bodies there to protect investors). I have said many times in the past that the majority of investment scams involve advisors who are not registered. The fact that they are not registered is a big red flag.  

So, what if they are registered? Is the coast clear? Unfortunately, that is not the case. The problem that we are seeing is that registered investment advisors are getting around the law by scamming investors outside of their broken dealer or regulatory body. It is a sales trick called selling away and is against security laws. Unfortunately, it is easy for an advisor to pull this off at least for a while. 

  If the investment requires you to move money out of your investment accounts to your bank account and then transfer that money from your bank account to another investment, you need to be careful. That is a red flag. A legit investment can be funded straight from the investment account.

The following was from a State of Texas Securities Board email:

"Yet many investors don’t know that people and firms who sell securities must be registered with the Texas State Securities Board.

Generally, anyone acting as a sales agent for a company selling stocks, bonds, or other investments to the public must be registered to do so.

An investment promoter can’t simply set up a website or YouTube channel and sell investments unless the investments are registered or sold under one of the limited number of exemptions from registration.

Registering with the State Securities Board involves qualifications testing, background checks, and periodic review. To see if a person is registered to sell investments, visit Registration Checks or call (512) 305-8301."

Investments that are not registered

Investments recommended by legit advisors are generally registered. In most all cases, investments used in scams are not registered. To confuse things there are investments that might have certain requirements that are allowed to go unregistered. As in the preceding paragraph, unregistered investments require much more scrutiny. 

From the State of Texas Security Board

Cash-Outs and Rollovers. It's common to cash out some of your assets to make a down payment on a house, or pay education costs. Or to move from one registered investment firm to another.
But it's a different situation when you are solicited to cash out stocks, mutual funds, and even plain old savings accounts for the promise of higher, no-risk returns. You may be told that all you need to do is cash in some of your current holdings and hand them the money to manage. 

Bottom line - There is no scam that does not start with the promise of either high profits with no risk. Easy money, or high guaranteed returns. If you just keep your radar up, you can protect yourself from those who are wanting nothing more than steal your money.

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