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Online Investment Scams




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This article is from the Investing Articles: Stocks and Options series.

Online Investment Scams

Avoiding Online Investment Scams: 
Tips for Investors 

by the SEC

You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet whether it's on a company's website, in an online newsletter, on a message board, or in a chat room you should assume it's a scam until you've done your homework and proven otherwise.

Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking and getting answers to these three simple questions:

Is the investment registered?
 
To find out, check the SEC's EDGAR database (http://www.sec.gov/edgar.shtml). Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator. You'll find that number in the government section of your phone book. Or call the North American Securities Administrators Association (NASAA) at (202) 737-0900 or visit NASAA's website (http://www.nasaa.org).

Many online investment scams involve unregistered securities. One simple phone call could prevent you from squandering your money on a scam.

Is the person licensed and law-abiding?

Find out if the person or firm selling the investment needs to be licensed. Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. You can also get this information by calling NASD Regulation, Inc.'s public disclosure hotline at (800) 289-9999 or visiting their website (http://www.finra.org/InvestorInformation/InvestorProtection/ChecktheBackgroundofYourInvestmentProfessional/index.htm).

Does the investment sound too good to be true?

If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. Watch out for claims of astronomical yields in a short period of time. Be skeptical of "off-shore" or foreign investments. And beware of exotic or unusual sounding investments, especially those involving so-called "prime bank" securities. To learn more about "prime bank" securities, read the investor alert (http://www.sec.gov/investor/pubs/avoidfraud.htm).

Make sure you fully understand the investment before you part with your hard-earned money. Always ask for and carefully read the company's prospectus and latest financial statements.

 

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