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Don’t Become the Next Madoff Victim: Fight Investment Fraud

We have all watched our portfolios plummet while investment scams have pummeled our confidence. From Bernie Madoff’s alleged $50 billion ponzi scheme to Allen Stanford’s alleged $8 billion CD scam, we’ve learned the hard way that there’s no such thing as a risk-free investment.

In light of the spate of investment scams, FINRA, the financial industry’s regulatory agency, has rolled out some new tools to help point out red flags. The goal? To get to investors before the next Madoff does.

John Gannon, senior vice president in the office of investor education for FINRA, says that the agency's job is to enforce the rules and compliance for every broker and brokerage firm in the country. As the largest non-governmental regulator of U.S. securities firms, FINRA is also stepping up its game to educate investors. The authority developed a scam and risk meter as tools to help people judge their risk level. Below are two sample questions they ask:

Which of the following best describes the investment?
Choose one of the following:
-A promissory note
-A stock that sells for under $5 per share
-A high-yield investment program, “bank guarantee” or “Prime Bank” investment
-“Risk-free” or “guaranteed”
-I’m not sure what the investment is
-None of the above

Who is selling the investment?
Choose one of the following:
-A person not registered or licensed to sell the investment
-A person you recently met
-A member of a church, ethnic group or organization that you belong to
-You are not sure who is selling the investment
-None of the above

If you answered yes to anything other than ‘none of the above’ in either question, Gannon suggests taking a closer look at your investment as these are all potential red flags for fraud. Always know exactly where your money is and who you are entrusting it to. Remember: a broker must be licensed to be able to invest your money legally. Learn about more red flags at finra.org/fraud.


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