from the Securities and Exchange Commission
The SEC has recently experienced a significant uptick in tips, complaints, and referrals involving investment scams. The SEC’s Office of Investor Education and Advocacy urges investors to be on high alert in order to protect themselves and others from becoming victims of investment fraud.
Fraudsters use times of uncertainty and change, such as the current COVID-19 pandemic, to lure victims into investment scams. Below are tips to help you recognize and avoid frauds like Ponzi schemes, fake CD scams, bogus stock promotions, and community-based financial scams.
Watch Out for Ponzi Schemes
In a Ponzi scheme, fraudsters use money from new investors to pay existing investors. What appears to be a return on your investment is actually money from other investors who have been swindled. Look out for these hallmarks of a Ponzi scheme:
- Guaranteed High Investment Returns. Promises of high investment returns – often accompanied by a guarantee of little or no risk – is a classic sign of a Ponzi scheme. Every investment has risk, and the potential for high returns usually comes with high risk. If it sounds too good to be true, it probably is.
- Unlicensed and Unregistered Sellers. Most Ponzi schemes involve individuals or firms that are not licensed or registered. You should verify whether a seller is currently registered or licensed using the free and simple search tools on Investor.gov.
- Overly Consistent Returns. Investment values tend to fluctuate over time. Be skeptical of an investment that generates steady positive returns regardless of market conditions.
Don’t Fall For Fake CDs
During periods of market volatility, investors may be more likely to seek financial products with fixed-rate returns such as certificates of deposit (CDs). Online advertisements sometimes direct investors to “spoofed” websites that mimic the actual sites of legitimate financial institutions. These spoofed websites may be selling fake CDs. The website may have URL addresses similar to those of legitimate firms’ websites, or use legitimate-sounding names and URLs.
Look out for the following claims or statements to help identify whether a website selling CDs may be spoofed:
- Offering high interest rates with no penalties for early withdrawals;
- Promoting only CDs (and no other financial products);
- Directing investors to wire funds abroad or to an account with a different name than the listed financial institution; and
- Identifying “clearing partners” purportedly registered with the SEC.
Before you purchase a CD from a website you find through an internet search, consider these tips to help you avoid bogus CD scams.
Be Skeptical of Stock Promotions Involving COVID-19 Claims
SEC Enforcement Actions. The SEC has ordered dozens of trading suspensions, and in several cases brought fraud charges, against companies claiming to offer services or products relating to COVID-19. Learn more about these actions on the SEC Coronavirus (COVID-19) Response webpage.
We have become aware of promotions claiming that publicly-traded companies are poised to profit from the current pandemic because, for example, the companies are developing products or services that can prevent, detect, or cure COVID-19, and that the stock of these companies will dramatically increase in value as a result. The promoters may use social media (including Facebook and Twitter), spam emails, and unsolicited phone calls to tout a specific stock.
Be cautious of claims that a company’s products or services can help stop COVID-19, especially claims that involve microcap stocks. These claims may be made as part of fraudulent “pump-and-dump” schemes. You may lose significant amounts of money if you invest in a company that makes inaccurate or unreliable claims and you may not be able to sell your shares if trading in the company is suspended.
Look Out for Community-Based Financial Scams
Fraudsters sometimes exploit tight-knit trust and friendships within a community, targeting members of identifiable groups — including people with common ties based on ethnicity, nationality, religion, sexual orientation, military service, and age. This is known as affinity fraud.
The SEC routinely brings charges against perpetrators of affinity fraud and recent SEC enforcement actions involve schemes that targeted U.S. Military service members, African immigrants, seniors and small business owners, and members of the Amish and Mennonite, Hispanic, Haitian, and deaf, hard of hearing, and hearing loss communities.
Fraudsters may be (or may pretend to be) part of the group they are targeting. They may enlist group leaders to spread the word about the scheme. Those leaders may not realize the “investment” is actually a fraud, which means they too may be victims.
Even if you have something in common with someone selling you an investment, use the free and simple search tools on Investor.gov to check the person’s background, including the person’s license and registration status.
Additional Resources
Frauds Targeting Main Street Investors — Investor Alert
Look Out for Coronavirus-Related Investment Scams – Investor Alert
FTC article: Real Estate and Investment Scams
Report possible securities fraud to the SEC online at www.sec.gov/tcr.
This bulletin represents the views of the staff of the Office of Investor Education and Advocacy. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This bulletin, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
