You've likely seen the headlines stemming from the Securities & Exchange Commission's (SEC) recent court filing against a Chattanooga business and its president, alleging investment-related fraud. The case involves approximately 400 investors spread across at least 20 states. Consumers report they were guaranteed they would not lose their principal investment and that they would receive 6%-7% interest for two to three years for non-specific investments placed in an offered fund. Investors believed they would grow their retirement accounts, but the SEC's complaint states that as of July 2021, involved investors were owed over $110 million in principal.
While the case is pending and the outcome likely won't be determined until a jury trial takes place, some of the red flags outlined in the SEC's complaint sound all too familiar.
For example, a case filed in March by the U.S. Commodity Futures Trading Commission (CFTC) and 30 states – including Georgia and Tennessee – shut down California-based companies that were allegedly selling gold and silver at inflated prices. The case involves 1,600 victims with combined investments totaling $185 million. Approximately 75% of their investments were made from funds taken out of their retirement accounts.
Individuals report that they were led to believe there was no risk in their investment in gold and silver bullion. In several cases, employees used fear tactics to falsely cause investors to believe that they risked losing all of their money if it remained in bank accounts. Their advertising on TV, radio, social media, and through other platforms drew consumers in. From there, unscrupulous employees led individuals to purchase gold and silver coins for much higher than market rates — in some cases as high as 300x the prevailing market price of the precious metals.
Unfortunately, investment schemes can take many forms, but they all prey on our desire to make money without much risk or initial funding. They are often complex and can involve detailed stories. It can sometimes take years to realize you've been scammed. While investment schemers like to target people who have low investment experience, even savvy investors can fall for investment scams.
There are steps you can take, though, to help you evaluate investment opportunities. The Better Business Bureau has a simple adage – "Investigate before you invest." Here's a checklist to help guide you on how to do so:
Verify the registration of all investment opportunities. Be sure the investment is properly registered. Steer clear of any investments that should be registered with your state's securities division or other investment industry regulator but are not. Visit tn.gov/securities and sos.ga.gov to contact the securities divisions in Tennessee and Georgia. Visit brokercheck.org to check out investment advisers and brokerage firms through the Financial Industry Regulatory Authority (FINRA).
Watch out for buzzwords. Beware of the use of words like "guaranteed," or "little or no risk with high return." Markets fluctuate and no one can guarantee investment outcomes.
Request investment claims to be provided in writing and do your research. Ask the person offering the investment to put all of the details in writing so you can review and research the information before committing your funds. For example, make sure a project being touted as an investment opportunity actually exists. A little research may help keep you from losing hundreds or thousands of dollars to a fraudulent investment opportunity.
Watch for high-pressure sales tactics. These tactics can present themselves through many means –phone calls, emails, text messages, advertisements, as well as face to face presentations. Don't let emotions lead your decision, especially fear that you could be missing out on a huge opportunity. Keep in mind that some attempts may not feel like high pressure. For example, an invitation to a free dinner, something that's also referred to as an "opportunity meeting," could include false testimonials from paid promoters.
Check out companies with BBB. Visit bbb.org or call your local BBB office at 423-266-6144 to check for information on the company offering an investment opportunity.
For more investment-related tips and information from your BBB on ways to avoid losing your hard-earned money to other types of fraud, please visit bbb.org/scamtips.
Michele Mason is president of the Better Business Bureau in Chattanooga