7 Tips for Spotting an Investment Scam

Common Sense Rules to Keep Your Hard-Ea
ed Money

By P. Christopher Music

Do you know the tale-tell characteristics that indicate “investment scam?”
Over the course of the last two decades in the financial industry, I have had good fortune, and yes, bad fortune in learning about the realities of investments. When I speak with investors, it’s not uncommon for some people to insist on certain delusions they have accumulated regarding the subject. This article is an effort to give you some the characteristics of any investment proposal that deserves your careful scrutiny and distrust.
Most investment scams have certain characteristics in common:
1. Secrecy – Any investment program that is worth anything can stand up to the scrutiny of financial advisors, accountants, atto
eys and anybody else with some investment acumen. Many scams create this confidentiality to give the investor the feeling that they are “on the inside,” privy to investments only available to wealthy families or a select group of fortunate people. The confidentiality requirement is designed to prevent you from communicating with others about your involvement so you will keep believing what the scammers are telling you.

2. High Returns—What rates of return should a person receive for investing money? Well, if it sounds too good to be true, it probably is. While 20% returns may be possible for very speculative investments under certain circumstances, anything beyond that is simply not real over time. If any return on investment is greater than what would normally be earned on that type of asset, it is a good indicator that something isn’t right. Consult a knowledgeable financial advisor of your investment plans if you have any doubt.

3. No Track Record -- Any investment program should have returns that can be verified by a reputable third party, such as an accounting or law firm. Further, the principals of the program should have fully verified backgrounds with a proven record of successful past investment programs. Moreover, any start-up would have a logical product and a complete business plan replete with reasonable financials and marketing plan. If there is no track record, forget it.

4. Lack of Full Documentation—Any legitimate investment has full documentation, including a prospectus (a document that explains the details of an investment) or offering memorandum (which is for private placement programs, investment programs that are made available to qualified investors and not to the general investor public). Complete contracts would also be provided carefully covering all of the details of the proposed investment. Insist on full disclosure.

5. Guarantees—To my knowledge, the only investments that provide guarantees are insurance policies. If someone is offering you guaranteed returns or a personal guarantee, it’s not worth anything. If you lose your money in the investment, the personal guarantee is only as good as the assets of the person issuing the guarantee (if they had the money for the guarantee, why would they need yours?)

6. No Registration with Regulating Authorities—In order to offer an investment to the public, in most cases, the principal creating such an investment will have to register it with the State. Further, the person selling the investment will have to be registered with the State as a securities salesperson or investment advisor. Lack of such registration is a red flag.

7. Offshore Tax Benefits -- For American citizens, there are no offshore tax havens. In other words, US citizens are taxed on worldwide income, regardless of the source. Anyone stating that you can save or avoid income taxes by moving offshore is just dead wrong. There is no surer way of creating a problem than attempting to evade taxes. While there are asset protection reasons to use offshore entities, there are no legitimate income tax saving strategies offered offshore that cannot be done domestically.

I know I said 7 tips, but I thought of one more…

8. International Lure—Investing internationally has a certain allure to it. It’s exotic and different. The only problem is that you transfer your assets overseas and the chance of getting them back may be zilch. The complexities of international financial regulations and laws make it a great justification for someone to not be able to deliver on intended investment results. Just keep your money closer to home.

Greed and Desperationr
People invest in these programs due to desperation for money or the desire of getting something for nothing. The way to wealth is through investing wisely in your own ability and production and being intelligent enough to not spend everything you make. Falling victim to any investment scam can be a significant setback to your quality of life. Just don’t play that game. Learn the natural laws of money and apply them and you will be where you want to be in due course.