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Red Flags of Fraud

To stay on guard and avoid becoming drawn into a scam, look for the warning signs of investment fraud:

  • Guarantees: Be suspect of anyone who guarantees that an investment will perform a certain way or promises a lofty return. All investments carry some degree of risk.
  • Unsolicited offers: Don’t respond to unsolicited cold calls, emails, junk mail, late-night commercials or infomercials, or social media posts that are either overly attractive or fear-inducing. These are all common tactics scammers use to entice you to engage.
  • Unregistered products: Many investment scams involve unlicensed or unregistered individuals selling unregistered securities—ranging from stocks, bonds, notes or hedge funds to oil and gas deals or fictitious instruments, such as prime bank investments. Scammers might even claim the investment is exempt from registration, which, even if true, raises the risks immensely.
  • Overly consistent returns: Any investment that consistently goes up month after month—or that provides remarkably steady returns regardless of market conditions—should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups once in a while.
  • Complex strategies: Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they're doing. It's critical that you fully understand any investment you’re seriously considering—including what it is, what the risks are and how the investment makes money.
  • Missing documentation: If someone tries to sell you a security with no documentation—that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—they might be selling unregistered securities. The same is true of stocks without stock symbols.
  • Account discrepancies: Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error—or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets. For instance, is the investment professional also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occur if an investment professional is also the custodian of the assets and keeper of the accounts.
  • A pushy salesperson: No reputable investment professional should push you to make an immediate decision about an investment or tell you that you’ve got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate.

You can also use our Scam Meter to help spot red flags of investment fraud.

con em if you canPlay the Game, Learn the Tactics
Think you know all the clever persuasion tactics con artists use to defraud consumers? Sharpen your skills in the fictional town of Shady Acres in this interactive strategy game from the FINRA Foundation and the D2D Fund. Play online at or download to your mobile device from the app stores (search "Con Em").