News Release

FINRA Investor Alert, Online Tools Help Investors Protect Themselves From Financial Fraud

Washington, DC — The Financial Industry Regulatory Authority (FINRA) today issued an Investor Alert and unveiled two new online tools designed to help investors spot and resist investment fraud.

The Alert, Avoiding Investment Scams, clearly explains the characteristics of the most commonly used securities frauds, including Ponzi and pyramid schemes, pump-and-dumps and offshore scams. Drawing on ground-breaking research supported by the FINRA Investor Education Foundation, Avoiding Investment Scams lays bare the psychological persuasion tactics used by fraudsters to lure in their victims. These persuasion tactics are constant across a wide variety of frauds.

The online tools — a Scam Meter and a Risk Meter — will help investors evaluate the investments they're being offered and determine whether their own personality characteristics make them more vulnerable to investment fraud. The Scam Meter asks the user a series of questions about the investment he or she is considering to determine whether that investment might be too good to be true; and the Risk Meter asks 12 questions about the user's behavioral traits to determine if he or she shares characteristics that have been shown to make some investors vulnerable to investment fraud.

The Alert examines in detail specific tactics con artists employ, including the "Phantom Riches" tactic, which dangles the prospect of wealth, and the "Scarcity" tactic, which creates a false sense of urgency by claiming there is a limited supply of the investment product available. In addition, the Alert provides links to online tools investors can use to check the background of investment professionals (including brokers, investment advisers or insurance agents), investigate investments they are considering and file a complaint if a problem occurs.

"Recent financial frauds have robbed victims of their life savings and livelihoods," said John Gannon, FINRA's Senior Vice President for Investor Education and President of the FINRA Investor Education Foundation. "FINRA Foundation fraud prevention resources have been proven to reduce susceptibility to investment fraud. Using these tools can help investors shut the door on any con artists who might come knocking."

The Alert also outlines a series of red flag warnings, advising investors to be suspicious of investments that:

  • Offer guarantees that the investment will perform in a certain way;
  • Are not registered, including unregistered stocks, bonds and hedge funds;
  • Deliver overly consistent returns, regardless of market conditions; or
  • Credit complex investing techniques for their unusual success.

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.

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