The SEC’s Office of Investor Education and Advocacy (OIEA) warns investors not to fall for investment scams claiming to help charitable causes. Supporting a good cause while investing your money may sound like a win-win situation. But be aware that fraudsters may try to exploit your desire to help others by using charitable causes as a way to draw victims into investment scams.
What can you do to protect yourself?
- If you are considering participating in an investment offered by a charity that claims to be a tax-exempt or “501(c)(3)” organization, check out the organization’s tax status on the Tax Exempt Organization Search on the Internal Revenue Service’s website. If a so-called charitable organization is not listed, and has misrepresented that it is tax-exempt, do not invest in the organization. Even if the charity has 501(c)(3) status, this does not mean the investment is a legitimate opportunity – it still could be part of a fraudulent scheme. Ask questions and independently research the organization to find out as much as you can.
- As with any investment opportunity, check the background of the person selling or offering the investment. Use the free and simple search tools on Investor.gov to verify that the person is currently registered or licensed, and to find out about the person’s background, including any disciplinary actions or customer complaints.
- Be cautious if someone offers to give you money or a valuable gift in exchange for investing your money. Fraudsters sometimes use reciprocity (offering to do a small favor for you in return for a big favor) as a tactic to lure investors into investment scams.
- Be aware that fraudsters may ask you to agree upfront that your investment returns will be applied to a charitable purpose and then keep the money for themselves instead. You can always decide to donate your investment returns after you receive them.
When making an investment decision, do not let your guard down just because the investment claims to advance a charitable cause. Use the same level of scrutiny you would to evaluate any investment opportunity.
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- Report possible securities fraud to the SEC.
- Follow OIEA on Twitter @SEC_Investor_Ed. Like OIEA on Facebook at facebook.com/secinvestoreducation.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.