By Matthew J. Moisan
Securities & Venture Capital
Corporate On August 4, the U.S. Security and Exchange Commission’s Office of Investor Education and Advocacy issued an Investor Alert to help investors identify potentially fraudulent unregistered private placements. The Office cautioned investors to be cognizant of the following common signs of potential fraud:
1. Claims of high returns with little or no risk;
2. Unregistered investment professionals;
3. Aggressive sales tactics;
4. Lack of formal documents;
5. Lack of net worth or income requirements to participate;
6. Lack of other participants;
7. Sham or virtual offices;
8. Failure of the issuer to be in good standing in its state of formation;
9. Unsolicited Investment Offers; and
10. Suspicious or unverifiable biographies of managers or promoters.
In order to protect oneself against fraud, the Office indicated that prospective investors should:
1. Check the background of the investment professional;
2. Understand the investment strategy;
3. Ask questions; and
4. Be aware if common con artist tactics.
Of particular insight was the Office’s summary of common tactics used by con artists. These include phantom riches or enticing someone with prospective wealth, something you want but cannot have, source credibility or building credibility by claiming to be a part of a reputable firm or claiming to have special or unique experience, social consensus or leading you to believe that other savvy investors have already invested, reciprocity or offering to do a small favor in exchange for a big favor, and scarcity or creating a false sense of urgency by claiming a limited supply.
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