Identifying Scams, Ponzi Schemes & Other Fraud

Fraud is one thing most people think won’t happen to them. Of course, everyone thinks it’s possible that it could happen, but most people don’t see how even an opportunity for someone to defraud them would ever come around. After all, it’s common advice to shred mail, bank statements, and other documents with sensitive personal information. Computer experts urge the public to use strong passwords for online accounts and only give out personal information to secure, trusted websites. Yet, most fraud victims are often quoted as saying “they never saw it coming.”

Equity Trust Company knows fraudulent investments and investment scams can come from a variety of sources and take many different shapes. As a passive custodian, we are not permitted to evaluate investments for our clients. By providing self-directed IRAs, we want our clients to feel fully empowered to thoroughly investigate and examine investment opportunities that come their way. Equity Trust Company urges our clients to reach out to CPAs, financial advisors, attorneys, and other trusted individuals from their personal history to create a team of trusted advisors. Along with your knowledge and personal expertise, your team can help you find and review opportunities to make sound investment choices.

Asking the Right Questions

Equity Trust Company knows the sad truth is fraudulent investments, Ponzi schemes, and scams can look legitimate and even come from a trusted source. Listed below are some of the most common signs of a fraudulent investment or scam.
  1. Did you find the investment or did the investment find you? Be cautions if you receive unsolicited, unexpected calls, emails, mail, or even visits from strangers or an unfamiliar company. This can be a tipoff that this is a fraudulent investment or scam.
  2. Does the deal sound just too good to be true? If the person pitching the investment promises low or no risk, assures quick, high rate of return, or states the investment is guaranteed, be very skeptical. We all want to believe in finding a good opportunity, but there comes a time when good crosses over to too good. Even the best investments come with the possibility of loss and a fair degree of risk.
  3. Did you feel bullied, harassed, or intimidated by the salesperson or investment promoter to agree to the investment? There is no reason to tolerate high pressure sales tactics, especially when it concerns investing. Take it as a warning sign if the sales person is pushing a prospective investor to sign up immediately or trying to talk them out of taking some time to think it over and research the deal. Equity Trust Company urges our clients to keep their guard up, do their due diligence and be prepared to walk away if an investment starts to smell like a scam, fraud, or scheme of some sort. Legitimate investment promoters understand getting a second opinion.
  4. Can you explain, in your own words, what the investment is and how it works? People trying to commit fraud or run a scam will seek out people who may be unsophisticated or inexperienced in investing. Using fancy terms, elaborate or complicated concepts or trying to make a person feel stupid or guilty for asking questions or requesting documentation like a prospectus are all red flags for fraud.
  5. Does the investment sound like a conspiracy theory? Legitimate investments don’t rely on “special secrets of the rich,” “inside information ‘they’ don’t want the public to know,” or use rhetoric regarding how the U.S. Government is keeping the ‘little guy’ from being rich.
  6. Does this investment require all or the majority of your life savings or are you being pressed to take out a loan or cash in your IRA? Legitimate investment advisors advise their clients to diversify their investment holdings and suggest investments that meet their clients’ tolerance for risk.
  7. Can you verify who the investment promoter is? Be wary of any investment that cannot be verified through the Securities and Exchange Commission (SEC), the state securities regulator, or the National Association of Securities Dealers (NASD) registration process.
  8. Are you able to verify where your funds are and how they are being used in the investment? Equity Trust Company stresses caution with any investments offered from overseas or international locations or schemes to hide funds in tax shelters, trusts, or offshore accounts.
  9. Did you have any trouble cashing out or any delays in getting your money if you want out of the investment? Fraud such as Ponzi schemes, pyramid schemes, and other fraudulent investments rely on other victims’ funds to cover the amount of payouts to earlier investors.
If you suspect an investment to be fraudulent or have any concerns about your investment, report any wrongdoing or scams to these organizations.