Avoid Becoming a Victim of Securities Fraud

Every year, scammers defraud over 40 million Americans of billions of their hard-earned dollars through investment fraud.

Through a study conducted by AAPR and FINRA, the top 5 persuasion tactics used to perpetrate fraud were identified:

  1. Phantom riches – the promise of wealth and a lifestyle you want but can’t have
  2. Source credibility – basing credibility for investment advice solely on appearance and potentially false credentials
  3. Social consensus – encouraging one to invest based solely on the fact that many others have already done so
  4. Reciprocity – reliance on the fact that if you are provided with a gift (for example a free lunch), you will hand over your money for investing
  5. Scarcity – the threat of limited time or limited product used as a pressure tactic


In order to prevent becoming a victim yourself, watch out for the following “red flags” in any investment proposal:

  • Mention of guaranteed returns
  • The promise of zero risk
  • The pressure to act now or mention of limited time offer
  • Talk of how many people, especially well-known investors, have purchased.
  • Free lunch or dinner provided if you’ll listen to the pitch.
  • Any offer that wants to utilize wire transfers for the exchange of money or any method that you can’t trace.

How can you protect yourself?

  • Ask questions – The more you inquire into the background and motives of a salesperson or someone offering advice, the more likely they are to abandon a scheme if that’s what they’re after.  Legitimate advisers and brokers will be happy to answer all of your questions.
  • Stand your ground – Don’t be tricked into sharing personal or familial details with a stranger, no matter how friendly and trustworthy he or she seems.  NEVER give your financial information over the phone or via email, and don’t give in to high-pressure tactics, fear-mongering, or pitches that pull at your emotions.
  • Get a second opinion – No matter what you think of an investment opportunity, it is prudent to get a second opinion, whether from a trusted, informed friend, financial professional, or even a state agency.  While we cannot give advice on investments, we can verify license and registration to at least lend legitimacy to an offering.
  • Research – It is crucial that you verify that any securities professional, and any offering is properly licensed or registered, either with the state or at the federal level.  You can check either by visiting www.saveandinvest.org. Furthermore, always read through all materials diligently, and ensure that any investment, even if it’s legitimate, fits your risk tolerance and investment timeline.
  • Report – If you believe you or someone you know has become the victim of investment fraud, report it! Investment fraud is one of the toughest crimes to fight simply because people don’t come forward. You can contact:
    • The Colorado Division of Securities at 303-894-2320.
    • Your local law enforcement agency.