10 / 03 / 2020

Investment Scams

Investor Checklist

 

 

Were you promised a guaranteed return?

 

1.    Yes: The investor should be suspicious of such promises. There are no start-up or project investments that can offer such a promise.

 

2.    No: Keep reading.

 

The investment boasts low or no-risk?

 

1.    Yes: Investments usually do not carry low risks, and certainly there are no investments where risk(s) is/are not involved. The investor should remember that an investment with low-risk also brings in low returns. There is no such thing as low-risk and high returns.

 

2.    No: Keep reading

 

Was there pressure to act quickly?

 

1.    Yes: Fraudsters will use pressure tactics to make a sale or get funds. Be wary of such tactics. If you are asked to make a decision on the spot or within a very short timeframe, it is likely a scam. Most investments in start-ups or companies require time; time to research the company, read the business plans, do due diligence, etc. If there is pressure or desperation, someone just wants the money and not a business relationship.

 

2.    No: So far everything seems fine, but keep reading.

 

Was insider information offered?

 

1.    Yes: If the request or investment offers “hot tips” or insider information is mentioned, it is a red flag. The investor should question the motivation of the tipster. If the tips are false, the investor will lose all of their funds or, even worse, be imprisoned in cases of insider information. Legitimate start-ups and companies will not offer up secret information unless the investor is in the last stages or has already invested.

 

2.    No: Keep reading.

 

Was the start-ups/requestor’s registration status checked?

 

1.    No: Before you work with any start-up, the registration status should be checked. Don’t know how? In the U.S., search for database(s) based on the state of registration. In the U.K. you can go to the Companies House website.

 

2.    Yes: If everything checked out then the investment looks promising so far.

 

Is the investment verifiable?

 

1.    No: If you have received an unsolicited request, always check with verifiable sources for information. If the project cannot be verified, the investor should back out of the deal.

 

2.    Yes: If everything has been verified and no red flags have gone off so far, the investment seems to be legitimate.

 

Is the investment understandable?

 

1.    No: The investor should not invest until he or she fully understands the project he is investing in. The investor should consider taxes and fees, as well as the way the investor meets their own financial goals. Further clarification should be requested.

 

2.    Yes: Keep reading.

 

How did you find the investment?

 

1.    Online, Phone, Text: If you were approached for an investment without credible information do not respond. Double check the information first if the request seems “credible”. If it doesn’t, delete the e-mail or message.

 

2.    Through a group you belong to: Scammers may be using your group to target investors as part of affinity fraud. The investor should be careful and perform due diligence.

 

3.    A reliable source (family, investment advisor, etc.): If you have received information from a reliable source or from someone that you have previously used as a source for investments, the investment should be legitimate. However, make sure to perform due diligence every time.

 

4.    Other: Always check the registration status and verify information. Ask questions or for advice from an outside source in case of doubt.  

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