How to Avoid Fraud

Published by the SEC, A Guide for Seniors to Protect Yourself against Investment Fraud

Seniors are often the target of fraud. However, with some basic understanding of how scam artists work, you can avoid fraud and protect your hard-earned money.  Learning how to invest safely can mean a huge difference in your retirement years. Seniors are particularly vulnerable to tactics of scam artists who are ‘nice’ or attempt to develop a false bond of friendship. Scam artist prey on seniors who are polite to others and have difficulty saying ‘no’ or feel indebted to someone who has provided unsolicited investment advice.


What can I do to avoid being scammed?

Ask questions and check out the answers—Fraudsters rely on the fact that many people simply don’t bother to investigate before they invest. It’s not enough to ask a promoter for more information or for references—fraudsters have no incentive to set you straight.  Savvy investors take the time to do their own independent research and talk to friends and family first before investing.  And remember, if the product sounds too good to be true, it is!

Research the company before you invest – You’ll want to fully understand the company’s business and its products or services before investing.  Before buying any stock, check out the company’s financial statements by using the SEC’s EDGAR database at

Know the salesperson – Spend time checking out the person touting the investment before you invest—even if you know the person socially. Always find out whether this person if licensed to sell securities in Maryland. You can check out the disciplinary history of brokers and advisers quickly and for free using the online databases of the SEC and Financial Industry Regulatory Authority (FINRA).

Never judge a person’s integrity by how he or she sounds.  Successful con artists know how to sound professional.  They can make the flimsiest deal sound like a ‘sure thing.’

Watch out for salespeople who prey on your fears.  Con artists know that many seniors worry about the adequacy of their retirement savings, especially if they are faces with costly medical expenses. As a result, fraudsters know how to pitch their schemes.

Take your time—don’t be rushed into investment decisions.  Be skeptical of investments that are pitched as ‘once-in-a-lifetime’ opportunities, particularly if a promoter bases the recommendation on ‘inside’ or confidential information.

Be wary of unsolicited offers. Be especially careful if you receive an unsolicited fax or email about a company or see it praised on an Internet bulletin board but can not find any current financial information about the company from other independent sources.

Don’t lose sight of your investments.  Don’t rely on a financial professional who says, “leave everything to me.” Always monitor your account and request regular statements. You should never feel uncomfortable about questioning any trading activity that you don’t understand.  Remember—it is your money.  You also should keep all records of conversations that you have about any of your investments.


Question why you cannot retrieve your principal or cash out your profits.  If your broker, financial advisor or other person with whom you have invested your money stalls when your request your principal or profits, this may be because that person has already pocketed the money.  Don’t be fooled by explanations as to why your money is inaccessible or by suggestions that you roll over your ‘profits’ into other investments.

Never be afraid to complain. If you suspect fraud or a questionable practice and the explanations that you receive are not satisfactory, do not let embarrassment or concern that you will judged incapable of handling your own affairs prevent you from filing a complaint with the SEC, FINRA or Maryland’s regulator.

Where to call for help:
SEC: (800) 732-0330
FINRA Broker Check: (800) 289-9999
State Regulators: (202) 737-0900


  • If it sounds too good to be true, it is.  Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you will get substantially more could be highly risky.  And that means you might lose money.
  • “Guaranteed returns” aren’t. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, high yields typically involve high risk.  Most fraudsters spend time trying to convince investors that extremely high returns are ‘guaranteed’ or ‘can’t miss.’ Don’t believe it.
  • Beauty isn’t everything.  Don’t be fooled by a pretty website—they are remarkably easy to create.
  • Pressure to send money RIGHT NOW.  Scam artists often tell their victims that this is a once-in-lifetime offer, and it will be gone tomorrow.  But resist the pressure to invest quickly, and take the time you need to investigate before sending the money.

TYPES OF FRAUD: “Ponzi” and Pyramid Schemes, investment scams essentially robbing one person to pay another.  Oil and Gas Scams, these are portrayed as ‘strike it rich’ opportunities. Promissory Notes, is a form of debt similar to a loan or an IOU that a company may issue to raise money. Prime Bank Fraud, High Return or “Risk Free Investments, and Internet Fraud are others.