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Don’t Buy Into an Investment Scam – Investor Alert

Oct. 9, 2019

The SEC’s Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force (RSTF) urge investors to look for red flags of fraud before paying for investments by credit card or wire transfer.

 

  • Credit Cards.  Credit cards and investments are a risky combination.  Most licensed/registered investment firms do not allow customers to invest using credit cards.  Before investing, use the free and simple search tool on Investor.gov to make sure that any firm selling you an investment is currently registered or licensed.  We urge investors to work only with a licensed or registered investment professional or firm and not attempt to use a credit card to fund investments.  If you are still considering paying for an investment by credit card, be wary if you are:
    • Encouraged to open a new credit card or to increase the credit limit on an existing credit card account;
    • Asked to split your payment between multiple credit cards; or
    • Told you will make enough money in the next 30 days to pay your credit card bill.

Fraudsters may try to get you to apply for additional credit so they can make more money off of you.  They also may suggest splitting your investment between more than one credit card to avoid a large charge from being flagged as suspicious by credit card companies.  Finally, remember that there is no such thing as guaranteed high returns in a short period of time – this is a classic sign of fraud. 

In SEC v. Petersen, the SEC brought charges against the owners and operators of several boiler-room-like call centers for defrauding investors.  The SEC’s complaint alleges the call centers’ employees passed themselves off as “brokers” and “financial advisors” despite having little or no relevant experience.  These so-called “brokers” and “financial advisors” allegedly required investors to submit photos of their credit cards, drivers’ licenses, and a utility bill.  According to the SEC’s complaint, these so-called “brokers” and “financial advisors” used “Know Your Customer Rules” (“KYC”) to justify requiring the documents.  The SEC alleges that these so-called “brokers” and “financial advisors” wanted these documents to dispute allegations of unauthorized credit card charges.
  • Wire Transfers.  If you wire money outside of the U.S. for an investment that turns out to be a scam, you likely will never see your money again.  Anytime you pay for an investment by wire transfer – whether foreign or domestic – be suspicious if:
    • The wire is being sent to a person;
    • The address is suspicious (e.g., it is a mailbox or virtual address); or
    • You are told to note that the payment is for a purpose unrelated to the investment (e.g., medical expenses or a loan to a family member).
In SEC v. Senderov and Babazara, the SEC took action against a fraudulent multi-million dollar scheme that used boiler-room-like call centers to solicit investors.  The SEC alleges that the call centers’ employees used aliases and created fake bios.  Employees allegedly lied to investors about their professional experience, age, and location.  The SEC alleges that investors typically paid for the investments by credit card or bank wire to third-party companies.  According to the SEC’s complaint, many investors lost a significant portion of the money they invested.

Make sure you know to whom and to where you are wiring your money.  Fraudsters may ask you to note that your payment is for something other than an investment in order to keep the bank from detecting their scam. 

Be cautious if someone offering an investment urges you to withdraw money from your 401K account or liquidate all of your savings.  Another tactic fraudsters use is to ask for small deposits upfront, lead you to believe you are making money on your investments early on, and then push you to invest a large sum of money.

When it comes time to pay for an investment “opportunity,” look for warning signs of fraud and report potential scams to the SEC.

Additional Resources

 

Investor Alert: Don’t Invite Investment Scams to Find You

Don’t Fall for an Investment Scam – Investor Alert

Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at Help@SEC.gov.

Visit Investor.gov, the SEC’s website for individual investors.

Receive Investor Alerts and Bulletins from OIEA by email or RSS feed.  

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.

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