Identifying Scams: Questions to Ask

By Elsie Dudukovich0 Comments

There’s a line between a good investment and a too good to be true investment.  One can say due diligence, or the lack of, is one of the main things that determines what side of the line an investment falls on.  Equity Trust Company clients hold self-directed IRAs and this gives them the opportunity to use their knowledge and skills to choose an investment.  They can use their own team of trusted advisors and other professionals to locate and review opportunities, as well as trusting their own well-honed expertise.

The simplest way to describe due diligence is to see it as the study and care an investor takes before moving forward with an investment.  The beauty of a self-directed IRA is that it also allows you to explore avoid scams: ask questionsinvestments outside of your experience and skills.  Performing due diligence is also of benefit to you as you investigate unfamiliar opportunities.

Due diligence is one way to protect from being a fraud victim.  Asking questions is often a great starting point in investigating an investment.  Salespeople promoting legitimate investments know prospective investors will have serious questions to ask and will be ready to answer those questions.  Equity Trust Company wants to raise awareness of a warning flag to investors if they feel their questions aren’t welcome or respected.  One should also be sure the answers given actually answer the questions.

Another warning flag for a possible scam or scheme is to watch for a negative reaction of the people you’re considering investing money into if you inform them your attorney, accountant, or financial advisor will be reviewing this opportunity with you.  The same is true if you ask for financial documents, contact information of other clients, or proof of ownership of the collateral securing the note.

Here are some questions to get you started on the path to performing due diligence:
  • Have you heard of this person or company before?
  • Are you able to find their location and visit it, if desired?
  • Are they registered to do the type of business they are promoting?
  • Do you fully understand every aspect of what you’re agreeing to with this investment?
  • Does this type of investment exist?
  • Can you find information about the person or entity your investing into, outside of the information they are providing you?
  • Can you verify the claims the promoters are making from other, reliable sources?
  • Does the pattern of gains and losses look natural and make sense for this type of investment?
  • Did you find any fraud warnings, security violations, or lawsuits on file from the Securities and Exchange Commission, International Chamber of Commerce, or other governing bodies?
  • Do you feel bullied, harassed, or intimidated into investing or not performing due diligence?