from the Securities and Exchange Commission
The SEC’s Office of Investor Education and Advocacy (OIEA) warns investors not to fall for investment scams claiming to help charitable causes. Supporting a good cause while investing your money may sound like a win-win situation. But be aware that fraudsters may try to exploit your desire to help others by using charitable causes as a way to draw victims into investment scams.
What can you do to protect yourself?
- If you are considering participating in an investment offered by a charity that claims to be a tax-exempt or “501(c)(3)” organization, check out the organization’s tax status on the Tax Exempt Organization Search on the Internal Revenue Service’s website. If a so-called charitable organization is not listed, and has misrepresented that it is tax-exempt, do not invest in the organization. Even if the charity has 501(c)(3) status, this does not mean the investment is a legitimate opportunity – it still could be part of a fraudulent scheme. Ask questions and independently research the organization to find out as much as you can.
- As with any investment opportunity, check the background of the person selling or offering the investment. Use the free and simple search tools on Investor.gov to verify that the person is currently registered or licensed, and to find out about the person’s background, including any disciplinary actions or customer complaints.
- Be cautious if someone offers to give you money or a valuable gift in exchange for investing your money. Fraudsters sometimes use reciprocity (offering to do a small favor for you in return for a big favor) as a tactic to lure investors into investment scams.
- Be aware that fraudsters may ask you to agree upfront that your investment returns will be applied to a charitable purpose and then keep the money for themselves instead. You can always decide to donate your investment returns after you receive them.
In SEC v. Seinfeld and Postma, the SEC brought an enforcement action against defendants who allegedly operated a purported charity that they used to gain access to hospices and to defraud hospice patients. The SEC alleges that the defendants misled at least fourteen patients and their family members into believing that the investments offered were charitable. The defendants allegedly misrepresented that if the hospice patients purchased the securities while giving up the large majority of the anticipated investment returns, their disclaimed money would be used to help other hospice patients and their families. The SEC also alleges that one of the defendants visited each patient-purchaser in hospice and allegedly offered each patient-purchaser $200 as charitable aid in the form of a check, gift card, or cash and reserved $2,000 to $2,500 in securities proceeds for them upon their death. Instead of going to any claimed charitable objectives, however, the SEC alleges that the disclaimed proceeds from the securities transactions were divided among one of the defendants and wealthy investors.
When making an investment decision, do not let your guard down just because the investment claims to advance a charitable cause. Use the same level of scrutiny you would to evaluate any investment opportunity.
Additional Resources
- Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at [email protected].
- Report possible securities fraud to the SEC.
- Follow OIEA on Twitter @SEC_Investor_Ed. Like OIEA on Facebook at facebook.com/secinvestoreducation.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
