Comparitech is a website that helps readers improve their cyber security and privacy online. It analyzed data from the BBB, FTC, Internet Crime Complaint Center, and Financial Crimes Enforcement Network to estimate that just under 90,000 Americans lost almost $1.6 billion to investment fraud in 2021. Only 62% of investment-fraud cases are reported, so the true numbers for victims and losses are higher.
Other findings included:
The impact of investment fraud goes beyond the direct dollar losses. In a 2015 study, the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation reported that there are indirect financial costs and non-financial costs. Indirect financial costs include legal fees, fees for bounced checks, lost wages, and opportunity costs. Non-financial costs include stress, depression, anger, health issues and lost time.
FINRA says the stereotype of an investment fraud victim is someone isolated, frail and gullible. We’re all at risk, but FINRA says victims actually tend to be college educated and have above average financial knowledge and income. They are also self-reliant when it comes to making decisions and open to listening to new ideas or sales pitches, which can make them more susceptible to common persuasion tactics in investment scams:
Legitimate marketers use the same tactics, making it harder to distinguish a good offer from a bad one.
Take your time making any investment decision. At the BBB, we say “the faster they talk, the slower you should go.” Promises of guaranteed returns with little or no risk, and regardless of your investment experience, are scams. Remember that statistics and testimonials can be faked.
Ask if the person trying to sell you an investment is registered with FINRA, the SEC, and/or a state securities regulator, and verify the answers. FINRA’s BrokerCheck is a free online tool that can help you research the backgrounds of investment professionals and firms. Check the firm out with the BBB. Most investment offerings have to be registered with the SEC or a state securities regulator, so check out the offering also.
Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South. This column is in partnership with Better Business Bureau of Middle Tennessee & Southern Kentucky.