When the Securities and Exchange Commission (SEC) begins investigating an individual or business for potential securities violations, it’s usually because the suspected fraudster has displayed a number of red flags that signal a scheme.
Below, we have described some of the most frequently used tactics that are a sign the investment opportunity being presented is more than likely a scam.
Promises of Low Risks and High Returns
One of the most common red flags that tip off the SEC to investment fraud is the promise of low risks and high returns. Almost every investment opportunity comes with a risk, and some have the potential for a high return, but when you hear of an opportunity that promises returns of 200 percent within days of your investment—with no potential downside—you should bet on the investment being a scheme.
Unregistered Securities
When a broker sells an unregistered security, or if you are being presented with an investment opportunity that hasn’t been registered with the SEC, you should take caution before investing.
All securities are required to register with the SEC so that investors have the chance to research their potential investment, including the financial statements of the business and details of the investment in question.
When a security goes unregistered, none of this information is available and cannot be validated. This puts investors in a risky position should they choose to move forward.
Problems with Trade Documents
If the documents being presented in the sale of a security are particularly complicated or contain information that simply doesn’t make sense, the investment may be a scheme.
An investment opportunity that is legitimate will take the time to thoroughly explain the information an investor needs and wants to know in regard to their investment. Illegitimate opportunities will contain information that is not understandable by even the most seasoned brokers and investors.
Exclusivity and Secrecy
The SEC considers any investment that requires extreme secrecy or claims to be offered exclusively to the wealthiest investors a red flag for investment fraud. True opportunities will generally not need to be conducted secretly, although they may contain confidentiality and nondisclosure agreements.
Some legitimate investment opportunities are offered to investors who have a high income; however, fraudsters may maintain that the investment is exclusive but then fail to question the monthly income and net worth of a potential investor.
Speak with an SEC Whistleblower Lawyer
If you believe you might have information about a potential securities violation and are interested in becoming a whistleblower, contact a qualified SEC whistleblower lawyer at Meissner Associates as soon as possible. You can find us online or give our office a call at 1-866-764-3100 to schedule your confidential tip evaluation today.
