Don't believe everything you read in online newsletters, investing blogs, or bulletin boards. Fraud artists often float false information and "hot tips" as part of their efforts to rip-off investors or manipulate the market for a particular security.
To avoid internet scams:
Â· Independently Verify Claims. Never, ever, make an investment based solely on what you read in an online newsletter, bulletin board posting, or blog â€” especially if the investment involves a small, thinly-traded company that isn't well known. It's easy for a company or its promoters to make grandiose claims about new product developments, lucrative contracts, or the company's financial health. Before you invest, make sure you've independently verified those claims. Get started by turning to unbiased sources, such as the U.S. Securities and Exchange Commission (SEC), your state securities regulator, and securities industry self-regulatory organizations (including FINRA, Amex, and Nasdaq).
Â· Do Your Homework. Offers to sell securities must be registered with the SEC or eligible for an exemption â€” otherwise the offering is illegal. To see whether an investment is registered, check the SEC's EDGAR database and call your state securities regulator for more information about the company and the people promoting it. The fact that a company has registered its securities and files reports with the SEC doesn't guarantee the company will be a good investment. Likewise, the fact that a company hasn't registered and doesn't file reports doesn't mean the company is a fraud. But many investment frauds, including online scams, involve unregistered securities â€” so always investigate before you invest.
Â· Be Skeptical of Self-Provided References. Fraudsters will falsely assure you that an investment is properly registered with the appropriate agency and purport to give you the agency's telephone number so that you can verify that "fact." Sometimes they will give you the name of a real agency â€” other times they will make one up. But even if the agency does exist, the contact information they provide invariably will be false. Instead of speaking with a government official, you'll reach the fraudsters or their colleagues â€” who will give the company, the promoter, or the transaction high marks.
Â· Thoroughly Check Out Promoters and Company Officials. Many fraudsters are repeat offenders. Whenever the SEC sues an individual or entity, the agency issues a "litigation release." Litigation releases going back to 1995 are available on the SEC's website â€” simply run a search for the promoter, his or her company or newsletter, the company being touted, and its officers and directors. You also can check the licensing and disciplinary history of the person or entity promoting the opportunity by using FINRA 's free BrokerCheck service or by calling your state securities regulator.
Â· Find Out Where the Stock Trades. Many small, thinly-traded companies cannot meet the listing requirements of a national exchange. The securities of these companies trade instead in the "over-the-counter" market and are quoted on OTC systems, such as the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the OTC market generally are among the most risky and most susceptible to manipulation.
Â· Watch Out for High-Pressure Pitches. Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate an investment opportunity. Don't fall for the line that you'll lose out on a "once-in-a-lifetime" chance to make big money if you don't act quickly. Remember: if an opportunity sounds too good to be true, it probably is.
Â· Consider the Source and Be Skeptical. Whenever someone you don't know offers you a hot stock tip, ask yourself: Why me? Why is this stranger giving me this tip? How might he or she benefit if I trade? Never forget that the person touting the stock may well be an insider of the company or a paid promoter who stands to profit handsomely if you trade.
How to Report Online Investment Fraud
If you experience problems with your online investment account â€“ or if you encounter an investment scam:
Â· File a complaint with the SEC using the agency's agency's Online Complaint Center. Include as many details as possible, including a summary of the problem and the names, addresses, telephone or fax numbers, and email addresses or websites of any person or firm involved.
If you believe your personal information has been misused:
Â· File a report with the police.
Â· File a complaint with the Federal Trade Commission at www.ftc.gov/complaint.
Â· Then visit the FTC's identity theft website at ftc.gov/idtheft. While you can't completely control whether you will become a victim of identity theft, you can take some steps to minimize your risk.
For more information on investing wisely and avoiding costly mistakes, visit the information section of the SEC's website at sec.gov/investor.shtml.
Susan Grant, David Lyng Real Estate, Santa Cruz to Carmel