There are a million online articles about investment fraud and how to recognize the signs. And you can go the detailed route of researching the opportunity, checking out the broker with FINRA, asking if the broker is licensed and with whom, and other steps.
Or you can go the expedient route and just look at these two questions:
- Is the return being described as “guaranteed” or “risk-free?”
- Is the broker telling you the investment is a “secret?”
If the answer to either question is “yes,” do not proceed any further. You are about to fall victim to an investment scam.
There is no such thing as a risk-free, guaranteed investment. Companies can use the money you invest to make good decisions that increase profits, which comes back to you as an increase in the value of your share; or they can make poor decisions or get buried by a changing marketplace. Either or both can happen, and past performance is not an indicator of future growth. Any broker telling you the investment will only increase in value, with no risk of loss, is lying.
Scammers posing as investment brokers will sometimes attempt to portray the alleged opportunity as a “secret” that only certain people are allowed to know about. Usually this is a tactic to convince a potential victim not to talk to anyone else. Outside input is dangerous to scammer, since it only takes a couple people saying “that sounds kinda shady” to threaten the whole operation. That aroma of secrecy can also be used to dodge questions such as, “Why can’t I find any information about this investment online?” The reason is because it’s not legitimate.
As for actual “secret” investment deals…well, you know those high-profile cases where people get put in jail for insider trading?
Now, just because an investment scam passes this little test doesn’t necessarily mean it’s real. A savvy con artist may present a more realistic pitch, at which point you’ll have to do more research. Another question you can ask: who approached who?