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A GUIDE FORSENIORSProtect yourself againstinvestment fraud

How to Avoid FraudSeniors are often the target of fraud. However, withsome basic understanding of how scam artists work,you can avoid fraud and protect your hard-earnedmoney. Learning how to invest safely can make a hugedifference in your retirement years.Seniors are particularly vulnerable to scam artists whoare “nice” or attempt to develop a false bond of friendship. Scam artists prey on seniors who are polite andhave difficulty saying “no” or feel indebted to someonewho has provided unsolicited investment advice.What Can I Do to Avoid Being Scammed? Askquestions and check out the answers.Fraudsters rely on the fact that many people simplydon’t bother to investigate before they invest. It’s notenough to ask a promoter for more information or forreferences—fraudsters have no incentive to set youstraight. Savvy investors take the time to do their ownindependent research and talk to friends and familyfirst before investing. Make sure you understand theinvestment, the risk attached, and the company’shistory. And remember, if the investment sounds toogood to be true, it is!U.S. SECURITIES AND EXCHANGE COMMISSION 1

Researchthe company before you invest.You’ll want to fully understand the company’s businessand its products or services before investing. Beforebuying any stock, check out the company’s financialstatements by using the SEC’s EDGAR database(www.sec.gov/edgar.shtml), or contact your statesecurities regulator. Remember that unsolicited emails,message board postings, and company news releasesshould never be used as the sole basis for your investment decisions. Knowthe investment professional.Spend some time checking out the person touting theinvestment before you invest—even if you alreadyknow the person socially. Always find out whether theperson who contacts you is licensed to sell securitiesin your state and whether he or she or their firms havehad any trouble with regulators or other investors. Youcan check out the disciplinary history of an investmentprofessional quickly—and for free—at Investor.gov. Neverjudge a person’s integrity by how he orshe sounds.Successful con artists know how to sound professional.They can make even the flimsiest deal sound like a“sure thing.” Con artists know that the appearanceof professionalism combined with polite manners orovertures of friendship may lead many older investorsto accept their advice.2 A GUIDE FOR SENIORS

Watchout for investment professionals who preyon your fears.Con artists know that many seniors worry about theadequacy of their retirement savings, especially if theyare faced with costly medical expenses. As a result,fraudsters often pitch schemes offering unrealisticallyhigh rates of return. Takeyour time—don’t be rushed into investmentdecisions.Just because someone you know made money, orclaims to have made money, doesn’t mean you will too.Be especially skeptical of investments that are pitchedas “once-in-a-lifetime” opportunities, particularly whenthe promoter bases the recommendation on “inside”or confidential information. Remember that a fraudsterU.S. SECURITIES AND EXCHANGE COMMISSION 3

does not want you to think too much about the investment because you might figure out the scam. Bewary of unsolicited offers.Be especially careful if you receive an unsolicited phonecall or email about a company—or see it praised onan Internet bulletin board—but can find no currentfinancial information about the company from otherindependent sources. Many fraudsters use emailand Internet postings to tout thinly traded stocks, inthe hopes of creating a buying frenzy that will pushthe share price up so that they can sell their shares.Once they dump their stock and quit promotingthe company, the share price quickly falls. And beextra wary if someone you don’t know recommendsforeign or “off-shore” investments. When you sendyour money abroad, and something goes wrong, it’smore difficult to find out what happened and to locateyour money. Don’tlose sight of your investments.Don’t rely on an investment professional who says“leave everything to me.” Always monitor the activityon your account and request regular statements. Youshould never feel uncomfortable about questioning anytrading activity that you don’t understand. Remember—it’s your money.4 A GUIDE FOR SENIORS

Questionwhy you cannot retrieve your principalor cash out your profits.If your investment professional stalls when yourequest your principal or profits, this may be becausethat person has already pocketed your money. Don’tbe fooled by explanations as to why your money isinaccessible or by suggestions that you roll over your“profits” into other investments. Neverbe afraid to complain.If you suspect fraud or a questionable practice andthe explanations that you receive are not satisfactory,do not let embarrassment or concern that you will bejudged incapable of handling your own affairs preventyou from filing a complaint with the SEC, FINRA, or yourstate securities regulator.Where to Call for HelpSEC: (800) 732-0330To Find Your State Regulator: (202) 737-0900FINRA Securities Helpline for Seniors: (844) 574-3577U.S. SECURITIES AND EXCHANGE COMMISSION 5

Here Are Some Red Flag Warningsof Fraud: Ifit sounds too good to be true, it is. Comparepromised yields with current returns on well-knownstock indexes. Any investment opportunity that claimsyou’ll get substantially more could be highly risky. Andthat means you might lose money. “Guaranteedreturns” aren’t. Every investmentcarries some degree of risk, and the level of risktypically correlates with the return you can expectto receive. Low risk generally means low yields, andhigh yields typically involve high risk. If your money isperfectly safe, you’ll most likely get a low return. Highreturns represent potential rewards for folks who arewilling and financially able to take big risks. Most fraudsters spend a lot of time trying to convince investorsthat extremely high returns are “guaranteed” or “can’tmiss.” Don’t believe it. Beautyisn’t everything. Don’t be fooled by a prettywebsite—they are remarkably easy to create. Pressureto send money RIGHT NOW. Scam artistsoften tell their victims that this is a once-in-a-lifetimeoffer, and it will be gone tomorrow. But resist thepressure to invest quickly, and take the time you need6 A GUIDE FOR SENIORS

to investigate before sending money. If it is that goodan opportunity, it will wait.Con artists are experts at gaining your confidence.So be certain to treat all unsolicited investmentopportunities with extreme caution. Whether youhear about the “opportunity” through an email, phonecall, or the mail, be certain to check out both theperson and firm making the offer and the investmentthey are pushing.U.S. SECURITIES AND EXCHANGE COMMISSION 7


Types of Fraud“Ponzi” and Pyramid SchemesThese investment scams are essentially “robbing oneperson to pay another.” Initial investors are paid offwith money taken from new investors. As long as asteady flow of new investors keeps coming in, therewill be money to pay off the old investors. This earlyreturn on investment is misleading, however, becausewhen the new investors stop coming in, the schemecollapses, investors lose their money, and the fraudsters walk away rich.Oil and Gas ScamsIf you think you’ve found the right oil or gas investmentto “strike it rich,” consider this: it may be a scam. Whilesome oil and gas investment opportunities are legitimate, many oil and gas ventures are frauds. Many ofthese schemes start in so-called “boiler rooms,” whereskilled telemarketers use high pressure sales tactics toconvince you to hand over your hard-earned money.The oil and gas industry is often in the news, and thispublicity can be used to lure potential investors andmake “opportunities” sound legitimate.U.S. SECURITIES AND EXCHANGE COMMISSION 9

Promissory NotesA promissory note is a form of debt—similar to a loanor an IOU—that a company may issue to raise money.Typically, an investor agrees to loan money to thecompany for a set period of time. In exchange, thecompany promises to pay the investor a fixed return onthe investment.While promissory notes can be legitimate investments, those that are marketed broadly to individualinvestors often turn out to be scams. Investorsshould be careful to determine their legitimacy andshould seek the advice of an objective third partywhen in doubt.Prime Bank FraudIn a prime bank scheme, fraudsters often claiminvestors’ funds will be used to purchase and trade“prime bank” financial instruments or other “high yieldinvestment programs” (“HYIPs”) on offshore markets inorder to generate huge returns in which the investorwill share. However, neither these instruments, northe markets on which they allegedly trade, exist. Togive the scheme an air of legitimacy, the promotersdistribute documents that appear complex, sophisticated and official. The sellers frequently tell potentialinvestors that they have special access to programsthat otherwise would be reserved for top financiers10 A GUIDE FOR SENIORS

on Wall Street, or in London, Geneva or other worldfinancial centers.High Return or “Risk Free” InvestmentsSome unscrupulous investment professionals makeunsuitable recommendations to purchase investmentproducts that don’t meet the investment objectives ormeans of an investor. Unsuitable recommendationsmight occur when a broker sells speculative investments such as options, futures or penny stocks to a95-year-old widow living on a fixed income with a lowrisk tolerance. Investors should be careful to reviewthe risk profile of each investment recommendation and seek the advice of an objective third partywhen in doubt.Internet FraudInternet investment frauds mirror the frauds perpetrated over the phone or through the mail. Rememberthat fraudsters can use a variety of Internet tools tospread false information, including bulletin boards,online newsletters, spam, or chat rooms. They can alsobuild a glitzy, sophisticated web page. All of these toolscost very little money and can be found at the fingertipsof fraudsters.U.S. SECURITIES AND EXCHANGE COMMISSION 11

“Senior” Specialists andAdvisorsWhat You Should Know about ProfessionalDesignationsSome investment professionals use designations suchas “senior specialist” or “retirement advisor” to implythat they are experts at helping seniors with financialissues. However, this may not always be the case.The education, experience, and other requirementsto obtain and maintain a “senior” designation varygreatly. In some cases, an investment professional mayneed to study and pass several rigorous exams—afterworking in a designated field for several years—toreceive a particular designation. In other cases, it maybe relatively easy in terms of time and effort to receive12 A GUIDE FOR SENIORS

a “senior” designation, even for an individual with norelevant experience.If you want to find out more about a particularprofessional designation, check out the “UnderstandingInvestment Professional Designations” page on FINRA’swebsite (http://www.finra.org/investors). The pageprovides the education and experience requirementsfor many professional designations. In addition, you canfind out whether the granting organization for a particular designation requires continuing education, offersa public disciplinary or investor complaint process, orprovides a way to check the status of an investmentprofessional. Keep in mind that neither FINRA nor theSEC endorses any professional designation.Even after doing some research, it may not be clearto you whether a professional designation representslegitimate expertise, a marketing tool, or somethingin between. That’s one reason you should always lookbeyond an investment professional’s designation anddetermine whether he or she can provide the type offinancial services or product you need.We encourage you to thoroughly evaluate thebackground of anyone with whom you intend to dobusiness—before you hand over your hard-earned cash.You also should ask questions—that’s the best advicewe can give you about how to invest wisely. We see toomany investors who might have avoided trouble andlosses if they had asked basic questions from the start.U.S. SECURITIES AND EXCHANGE COMMISSION 13

Where to Go for HelpSEC Office of Investor Education andAdvocacyIf you encounter a problem with an investment or havea question, you can contact the SEC’s Office of InvestorEducation and Advocacy at:U.S. Securities and Exchange CommissionOffice of Investor Education and Advocacy100 F Street, NEWashington, DC 20549-0213Telephone: (800) 732-0330Fax: (202) 772-9295You also can send us an online complaint form(www.sec.gov/complaint.shtml) or email us athelp@sec.gov.Investor.govInvestor.gov—the SEC’s website designed for individualinvestors—includes a section specifically for seniors(Investor.gov/seniors). There you will find resources tohelp you understand some of the investment productsoften marketed to seniors and how to avoid investment fraud.14 A GUIDE FOR SENIORS

You can order copies of the publications andbrochures listed below on Investor.gov. The publications are available in both English and Spanish and areavailable for download. Ask Questions: Questions You Should Ask AboutYour Investments Saving and Investing: A Roadmap to Your FinancialSecurity Through Saving and Investing Mutual Funds and Exchange-Traded Funds: A Guidefor Investors Stopping Affinity Fraud in Your CommunityAdditional SEC ResourcesOur online search tool at Investor.gov allows you tocheck the registration status and background of investment professionals.If you have been a victim of a scam, you can checkthe SEC’s website (www.sec.gov/litigation.shtml)for information about SEC actions and investorclaims funds.U.S. SECURITIES AND EXCHANGE COMMISSION 15

State RegulatorsWhile the SEC regulates and enforces the federal securities laws, each state has its own securities regulatorwho enforces what are known as “blue sky laws.”These laws cover many of the same activities the SECregulates, such as the sale of securities and those whosell them, but are confined to securities sold or personswho sell them within each state.In addition, your state securities regulator can tellyou whether the investment is registered and whetherthe investment professional and his or her firm arelicensed to do business in your state. Your stateregulator also can check their disciplinary history.You can find out the name of your state securitiesregulator by visiting the website of the North AmericanSecurities Administrators Association, Inc. (NASAA) atnasaa.org or by calling (202) 737-0900. In addition,NASAA’s website includes investor information devotedto seniors at ServeOurSeniors.org.The Office of Investor Education and Advocacy has providedthis information as a service to investors. It is neither alegal interpretation nor a statement of SEC policy. If youhave questions concerning the meaning or application of aparticular law or rule, please consult with an attorney whospecializes in securities law.16 A GUIDE FOR SENIORS

SEC Pub. 187 (7/17)

with money taken from new investors. As long as a steady flow of new investors keeps coming in, there will be money to pay off the old investors. This early return on investment is misleading, however, because when the new investors stop coming in, the scheme collapses, investors lose their money

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