ONLINE INVESTMENT FRAUD
The North American Securities Administration Association estimates that Internet-related fraud costs investors $10 billion per year. Online investment fraud, now considered to be the second most common form of investment fraud, is definitely big business, preying on Americans who want to get rich a little too quickly. THAT MONEY SHOW host Betsy Karetnick teams up with Jay Perlman, Associate General Counsel at The Motley Fool, an investor education Web site, to give you some advice on how to avoid online investment scams.
To hear Jay's exact words, click on the video clip to the right. Select 56K if you have a slow connection to the Internet or T1 if you have a fast connection.
Most online scams look just like the ones you can hear on the telephone or see on a flyer on your windshield. We've seen them all before with the same catch-phrases such as "guaranteed return," "earn thousands, even millions," or "retire now." These are phrases and investments to be avoided. Aside from avoiding pipe dreams, beware of penny stocks. Seventy-five percent of all companies whose stock trades for less than $5 a share will fail within five years. Remember, if it sounds too good to be true, it probably is.
Here are some telltale signs of fraud from the SEC:
1) Pressure to invest before you've had an opportunity to think about or investigate the stock or investment
2) Sales people offering "inside" or "confidential" information
3) Claims of a "once-in-a-lifetime opportunity" or a "limited time offer"
4) Promises of spectacular profits or "guaranteed" returns
5) Assurances that the investment is "risk-free" or "as safe as a certificate of deposit"
6) Reluctance -- or outright refusal -- to send you written information about the investment
Not all online fraud is so obvious. Fortunately for investors though, it's online. If you're online that means you have, as Perlman says, " the greatest investor education tool" right at your fingertips. There's a good chance you can get an answer almost immediately. Use your common sense and do your homework before you invest in anything and avoid frauds altogether. One thing to do right away is check that the investment is registered. Many online scams involve unregistered securities. You can use the SEC Web site to check for registered investments; but some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator.
What if you get scammed? Don't be embarrassed about it, and get to the authorities right away. Perlman recommends that you contact everyone possible as soon as possible. Consider calling your local police, the SEC, the Better Business Bureau, and your friends. Fortunately, online scams often leave a very visible digital paper trail and online investigators are getting more and more sophisticated.
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