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1. Make sure it registers to check the registration

While some frauds may be impossible to detect, others give telltale signs. First ask yourself before making any investment: Is it registered? Most investment products must be registered with a state financial institution, making it easy to research whether they’re legitimate.

You’ll also want to check whether a person or company has a license to sell investments, which is required in most states. Knowing that an entity is approved to make investment recommendations goes a long way towards inspiring confidence.

Need extra help verifying a company or person? Contact the Securities and Exchange Commission’s Office of Investor Education and Advocacy. And in the event you run into a fraud, you can file a complaint by contacting the Financial Industry Regulatory Authority (FINRA).

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2. Say no to FOMO – and know what you don’t know

Even the smartest investors give in to the “fear of missing out” (FOMO). FTX reeled in countless people who had no idea how cryptocurrencies work.

So if you’re worried that an investment isn’t in your wheelhouse, that’s actually a good thing. It means stay away. Otherwise, if you don’t know its general workings, you’ll also have no idea what hit you in the event of a fraud.

Scammers hope that you’ll abandon all logic and due diligence in the rush to get rich. “Act fast! Who knows how long this will last?” Remember that time is in fact your greatest ally in investing, while haste is the enemy.

Without doing some basic research, how can any investor know a company’s background, the track record of its players, or what it even does? Give your FOMO a chill pill; keep your impulses in check. The classic Benjamin Graham investment book, the one billionaire Warren Buffett treats as a bible, is called “The Intelligent Investor” — and not the ignorant or impatient one.

3. Right now, get it in writing

With any and every legitimate investment opportunity, you should be able to take your time, read through the documentation and learn everything you need to know about the product.

The documents should be easy to understand if a company hopes to bring on investors. If you’re confused, or come across fantastical claims without proof to back them up, take pause. Scammers play on emotions, not deliberative thinking. And remember: No legitimate equity investment will guarantee you a return.

Unfortunately, the online world gives fraudsters ample opportunity to avoid documentation and whip up hype. Social media not only gives a crook a megaphone, but also an easy escape route once you invest, if that’s the only place you can find them.

Getting it in writing means you’ll know exactly how to contact the investment company, point person or broker — and learn who they are in the broader financial sphere. Why would a scammer want you to verify their identity, let alone find them once you sense something’s off?

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Bottom line: It truly pays to ask

The most sophisticated scams are hard to spot, and the scammers themselves often fool some influential people. Enron’s Kenneth Lay counted President George W. Bush as a close friend. Madoff’s roll call of famous investors included Kevin Bacon and Kyra Sedgwick. And when the dust from FTX settles, expect to see many prominent names joining Belfer, Brady and Kraft.

So ask questions. Be skeptical, especially if huge returns are promised and urgency runs high. Brokers who make their living by helping investors find solid opportunities will be happy to help you get all the information you need and ask to see. Theirs is by law, and by conscience, a fiduciary responsibility to put you and your money first.


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Amy Legate-Wolfe Freelance contributor

Amy Legate-Wolfe is an experienced personal finance writer and journalist. She has a Bachelor of Arts in History from the University of Toronto, a Freelance Writing Certificate in Journalism from the University of Toronto Schools, and a Master of Arts in Journalism from Western University. Amy has worked for Huffington Post, CTVNews.ca, CBC, Motley Fool Canada, and Financial Post. She is skilled at analyzing trends and creating content for digital and print platforms. In her free time, Amy enjoys reading and watching British dramas on BritBox. She is a mother and dog-mom to a Wheaten Terrier.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.