DON'T BELIEVE EVERYTHING YOU HEAR
"Before you invest, investigate" was the slogan of the National Better Business Bureau back in 1929. The same concept applies today, 76 years later.
Here are some vintage financial observations that can help you avoid becoming a victim of financial fraud.
Big returns — It is always easy for investment promoters to boast that an investment will provide higher-than-average dividends or market profits. However, the heavy risks associated with these abnormal returns are not always revealed. Promises of high returns may be "the chief talking points of financial charlatans."
Prominent names — Using the name of successful or noteworthy people to lure victims is an old ploy. However, the names of these people and their endorsements may be without authorization or knowledge. As a prudent investor you should investigate the merits of the investment and make decisions based on sound financial analysis.
The ground floor — Being the first to get in on an amazing moneymaking opportunity may be equivalent to the same opportunity the "spider extended to the fly."
Inside information — We all know what happened to Martha Stewart after she was accused of acting on insider information. Insider tips are often false, misleading or downright illegal. Don't rely on information you gleaned at the office water cooler or from a broker who claims to have the inside scoop. The only scoop may be the one in your pocket as a swindler reaches in for your money.
The irresponsible guarantee — Promises that profits will be made, dividends paid or that the company will buy back your investment if you are unhappy mean nothing unless they are in writing. Even if the promises are in writing, they may be false or the company won't be able to fulfill its promises and guarantees.
Telephone canvas — Back in the 1920s, crooks used the telephone to promote bad investments. Today is no different. However, the problem extends to the Web and e-mails. While the telephone remains a tool for legitimate businesses, it is also used by swindlers.
False sense of security — Usually associated with real estate deals when an investor is told, this is "the safest investment on earth." Hucksters attempt to unload property upon people who want to make an investment and not a speculation. Fabulous profits are promised from increased values or earnings when the property is developed. This scheme can be very tempting, particularly in Florida where prices seem to go up and up. However, caution is the red flag, even when making a "sure bet" real estate investment.
In closing, here is a passage from author George Husser writing in a 1929 booklet titled "Crooked Financial Schemes Exposed."
"Most of the newest fraudulent enterprises are revivals of those which have long made forays into the field of legitimate business. They represent the same old wolf, disguised as a lamb a little more effectively than ever in our complex economic world. A fundamental characteristic of the faker is his opportunism. Nothing of public interest escapes him as a possible means of squeezing money from gullible persons."