SCAM GUIDE: How to spot investment fraud, and how to get help

Credit: DaytonDailyNews

An online shopping scam is making a huge comeback. News Center 7??€™s Consumer Reporter Rachel Murray explains how the scam works and what you need to know before you shop.

Credit: DaytonDailyNews

A former Dayton investment advisor misappropriated more than $1.6 million from clients — many who were elderly — for the past 14 years, the U.S. Securities and Exchange Commission said in a complaint.

The SEC termed the actions of John Gregory Schmidt a “long-running scheme.”

ExploreREAD MORE: Schemes to defraud older investors growing more widespread

Here’s what you need to know to about protecting yourself from investment fraud and reporting suspected fraud.

Ask questions: Fraudsters are counting on you not to investigate before you invest. Fend them off by doing your own digging. It's not enough to ask for more information or for references – fraudsters have no incentive to set you straight. Take the time to do your own independent research.

Research before you invest: Unsolicited emails, message board postings, and company news releases should never be used as the sole basis for your investment decisions. Understand a company's business and its products or services before investing. Look for the company's financial statements on the SEC's EDGAR filing system.

Know the salesperson: Spend some time checking out the person touting the investment before you invest – even if you already know the person socially. Always find out whether the securities salespeople who contact you are licensed to sell securities in your state and whether they or their firms have had run-ins with regulators or other investors. You can check out the disciplinary history of brokers and advisers for free using the SEC's and Financial Industry Regulatory Authority's online databases.

MORE: Biggest 2017 local scams included phishing, taxes and sweepstakes

Be wary of unsolicited offers: Be especially careful if you receive an unsolicited pitch to invest in a company, or see it praised online, but can't find current financial information about it from independent sources. It could be a "pump and dump" scheme. Be wary if someone recommends foreign or "off-shore" investments. If something goes wrong, it's harder to find out what happened and to locate money sent abroad.

Red Flags For Fraud And Common Persuasion Tactics

If it sounds too good to be true, it is. Watch for "phantom riches." Compare promised yields with current returns on well-know stock indexes. Any investment opportunity that claims you'll receive substantially more could be highly risky – and that means you might lose money. Be careful of claims that an investment will make "incredible gains," is a "breakout stock pick" or has "huge upside and almost no risk!" Claims like these are hallmarks of extreme risk or outright fraud.

Catching up? Read more about the suspected investment fraud scheme

• SEC charges Bellbrook man with ‘rob Peter to pay Paul’ scheme

• Schemes to defraud older investors growing more widespread

"Guaranteed returns" aren't. Every investment carries some degree of risk, which is reflected in the rate of return you can expect to receive. If your money is perfectly safe, you'll most likely get a low return. High returns entail high risks, possibly including a total loss on the investments. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are "guaranteed" or "can't miss." They try to plant an image in your head of what your life will be like when you are rich. Don't believe it.

Beware the "halo" effect. Investors can be blinded by a "halo" effect when a con artist comes across as likeable or trustworthy. Credibility can be faked. Check out actual qualifications.

"Everyone is buying it." Watch out for pitches that stress how "everyone is investing in this, so you should, too." Think about whether you are interested in the product. If a sales presentation focuses on how many others have bought the product, this could be a red flag.

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Pressure to send money RIGHT NOW. Scam artists often tell their victims that this is a once-in-a-lifetime offer and it will be gone tomorrow. But resist the pressure to invest quickly and take the time you need to investigate before sending money.

Reciprocity. Fraudsters often try to lure investors through free investment seminars, figuring if they do a small favor for you, such as supplying a free lunch, you will do a big favor for them and invest in their product. There is never a reason to make a quick decision on an investment. If you attend a free lunch, take the material home and research both the investment and the individual selling it before you invest. Always make sure the product is right for you and that you understand what you are buying and all the associated fees.

Where Can I Go For Help?

If you have a question or concern about an investment, or you think you have encountered one of these frauds, please contact one of the following agencies to report the fraud and to get assistance.

U.S. Securities and Exchange Commission

Telephone: (800) 732-0330

Financial Industry Regulatory Authority 

Telephone: (301) 590-6500

North American Securities Administrators Association

Telephone: (202) 737-0900