By Brandon M. Peck

Investors, who have been harmed financially in the past or warned of the market’s volatile downturns, find particular comfort in iron-clad guarantees from solicitors when considering an investment.  Aware of the comfort that the word “guarantee” can provide to potential victims, financial scammers abuse it as a tactic to make their investment pitches look more appealing.  Scammers go to great lengths to appear legitimate, which makes it difficult for targeted investors to determine whether a solicitation is genuine or fraudulent.

On February 16, 2018, the Financial Industry Regulatory Authority (“FINRA”) issued an “investor alert” that warned investors of imposter scams that involved scammers posing as “regulators” and touting the word “guarantee” in order to increase their perceived legitimacy and credibility while making fraudulent investment pitches.

Through a series of phone calls, the financial scammer seeks to build a personal relationship with the investor.  Scammers often also send investors official-looking documents, complete with logos and seals.  In fact, the recent imposter scams featured scammers using FINRA’s name and logo in letter correspondences to potential victims that included a fake signature from FINRA’s President.

Unfortunately, the fraudulent investment pitches being solicited to targeted investors are “advance-fee scams,” which involve enticing investors into sending money to cover administrative or regulatory charges associated with a buyback of stock shares that are virtually worthless or under-performing. Once an investor sends the money, he or she will never see it again; nor will he or she receive any of the money promised by the scammer from the stock buyback.  Generally, the financial scammer continues to keep in touch with the targeted investor only until the investor sends money.

However, investment pitches that are actually advance-fee scams have several indicators of the solicitation’s fraudulent nature.  First and foremost, FINRA does not and will never guarantee investments; nor do FINRA officers play a role in facilitating any investment opportunities. If the solicitation offers any sort of “guarantee” or “warranty” from FINRA, the investor should immediately be alerted to the likelihood that the solicitation is fraudulent.

Second, if the solicitation involves a letter correspondence, the investor should diligently seek to identify several telltale signs of fraud.  These signs may include the abundant use of quasi-legal language throughout the document, the repeated use of the word “guarantee,” and any grammatical or contextual errors, such as the incorrect name of “FinRa” or the reference to erroneous FINRA employment titles.

Third, in the case of telephone correspondence, investment pitches that are initiated by “cold calls” are a fair indicator of a fraudulent scheme being perpetrated.  Moreover, in these scams, the targeted investor is often asked to provide sensitive personal information, including a copy of their passport or social security card.

Finally, as an investor, it is important to conduct due diligence and independent research for the official number of the government agency, office, or employee and call to confirm its authenticity and legitimacy.  A simple internet search may quickly reveal that the scammer’s company name is associated with allegations of fraud.

If there is any suspicion that a solicitation is fraudulent or misleading, an investor should discontinue any communication with the solicitor and contact FINRA immediately; before any provision of personal information or money.  FINRA offers a “Scam Meter” tool to help investors assess whether an opportunity is legitimate.  FINRA also offers a “Risk Meter,” which determines if an investor has any characteristics and behavior traits that are known to be particularly vulnerable to investment fraud.