Investment Red Flags


Red Flags to Help You Avoid Becoming A Victim Of Securities Fraud

Every year, scammers defraud over 40 million Americans of billions of their hard-earned dollars through investment fraud.

Through a study conducted by AAPR and FINRA, here are the top 5 persuasion tactics. Has anyone tried these on you? 

  1. Phantom riches – the promise of wealth and a lifestyle you want but can’t have
  2. Source credibility – basing credibility for investment advice solely on appearance and potentially false credentials
  3. Social consensus – encouraging one to invest based solely on the fact that many others have already done so
  4. Reciprocity – reliance on the fact that if you are provided with a gift (for example a free lunch), you will hand over your money for investing
  5. Scarcity – the threat of limited time or limited product used as a pressure tactic

Check out these common crypto "red flags":

RED FLAG: Claims customer assets are federally insured 

Stablecoins and digital asset exchange platforms are NOT federally insured. The Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) only protect bank or credit union depositors. The Securities Investor Protection Corp. (SIPC) protects investor assets if a financiallytroubled member firm fails. No insurance will protect you against market losses. 

RED FLAG: You’re invited to trade or invest by someone you’ve met online 

Most digital asset scams begin on social media or through messaging apps. Be weary when making digital asset payments to anyone you meet online. And don’t rely solely on tips or claims you see on social media.

RED FLAG: The company or adviser is not registered  

Only work with investment platforms and advisers that are registered to do business in the United States or in your individual state to ensure you retain your protections under the law. Digital asset trading platforms must register as money service businesses (MSBs) with the Financial Crimes Enforcement Network (FinCEN) and with many state regulators. To check registrations, visit https://fincen.gov/msb-state-selector.

RED FLAG: Unable to withdraw your money  

Most victims realize they’re involved in a fraud when they can’t get their money back. Victims are told they must wait a number of weeks, invest more to get to a higher account status, repay the loans and matching funds, and pay one undisclosed tax, fee, or charge after another until, ultimately, they give up. Never pay more money to get your money back.  

RED FLAG: There is no physical address or customer service phone number 

When scams are discovered, the criminals shut down websites, email addresses, messaging and social media accounts, and disappear. Many are in overseas locations where it is difficult to track them down. Registration requires businesses to provide physical headquarters and branch addresses as well as customer service phone numbers, so if something goes wrong customers know where to turn for help. Businesses that do not provide this information, or unregistered entities outside the United States, should be avoided. Verify an address by doing a street-level map search, and attempt to verify any service numbers by calling them.

RED FLAG: The more money you commit, the more you are guaranteed in return 

It doesn’t matter how much money you hand over. Increased returns require increasing your risk. Increasing your risk increases the chance of losing your money. 

For more information visit https://www.cftc.gov/