Is Your Financial Professional Using a False Credential?

It's possible. That's the message of a recent Securities and Exchange Commission (SEC) investor alert, which recommends that investors thoroughly check the claimed credentials of people soliciting their investments to see whether they are falsifying, exaggerating or hiding facts about their backgrounds. The agency has brought several recent enforcement cases along these lines.

False credentials can be
used deceitfully by some
to build credibility.

The alert cautions against trusting someone with your investment money just because he or she claims to have impressive credentials or experience. "Fraudsters often try to build credibility and gain trust by claiming to be an expert or have a special designation—a tactic known as source credibility" notes Gerri Walsh, President of FINRA Investor Education Foundation, which has done considerable research into how to recognize and avoid financial fraud. "But remember: credibility can be faked."

False Claims Fraud Really Happens

The SEC's alert identifies a number of fraud cases against investment advisers who made false claims about their credentials in an effort to gain the trust and confidence of investors. 

In one instance, one adviser touted that he was named a "Top 25 Rising Business Star" by Fortune Magazine as he solicited investors through blast emails and the Internet for a private fund. However, no such distinction actually exists at Fortune Magazine.  

Another case involved an individual who launched an investment scheme related to a fake hedge fund and another scheme involving a subscription service for investment advice. The scammer allegedly posed as an investment banker with nearly 10 years of experience and solicited investors through Twitter, Facebook and other social media.

The SEC alert notes that investors sometimes unintentionally contribute to a fraudster's false reputation by repeating to others the misrepresentations made to them. 

Before you invest, follow a simple strategy of "Ask and Check." Ask if the individual and all investments that are being promoted are registered. Then check to verify what you are being told is accurate:

  • Check the backgrounds of brokers and investment advisers by using FINRA BrokerCheck.  
  • Use FINRA's Professional Designations tool to check if an investment designation exists, and what it takes to earn it. In some cases you can check with the issuing organization to see if the individual does in fact hold the designation. Use a search engine to check that awards or distinctions actually exist.
  • Check that investments are registered with the SEC. In most cases, securities must be registered with the SEC and if so, can be found by using the SEC's EDGAR database.

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