Washington State Department of Financial Institutions

How to Avoid Scams & Fraud

Many people think of fraud as “a bad deal,” “being ripped off,” or “not getting my money’s worth.”  Many victims of financial crimes blame themselves for not seeing through the scam. No matter what we call them -- con artists, con men, scamsters -- they're criminals. They steal our money. They're not just people next door trying to make a living. They are trying to deprive us of the money that we have worked hard to earn and save. They destroy lives.

These criminals like to prey on the naive, inexperienced investor. However, any investor can become a victim. Any investor can succumb when the product is packaged attractively enough.

Ten Self-Defense Tips

  1. Don’t be a courtesy victim.  Con artists will not hesitate to exploit the good manners of the potential victim.  Remember that a stranger who calls and asks for your money is to be regarded with utmost caution and skepticism. You have absolutely no obligation to stay on the phone with a stranger who wants your money. It's not impolite to say you are not interested and hang up.

  2. Don’t be rushed – check it out.  Say no to any salesperson that pressures you to make an immediate decision.  If he or she doesn’t have the time to explain the investment to your regular investment professional, or other party, or if they ask “Can’t you make your own investment decisions?”  Say NO!  You have the right and responsibility to check out the salesperson, firm, and the investment opportunity itself.  Almost all investment opportunities must be registered with the Securities Division.  Extensive background information on investment professionals and firms is available from the Securities Division.
    Before you even consider investing, get the prospectus, review it carefully, and make sure you understand all the risks involved.  But remember, even written material sent from the promoter can be fraudulent or misleading.
  3. Always stay in charge of your money.  Don't be taken in by anyone who wants your money and assures you that he or she is a professional and can handle everything.  Beware of any financial professional who suggests putting your money into something you don’t understand.  And never let yourself be talked into leaving everything in his or her hands. 

  4. Always watch over and protect your nest egg.  Never trust anyone who wants you to turn over your money to them and then sit back and wait for results.  If you understand little about the world of investments, take the time to educate yourself.  Constant vigilance is a necessary part of being an investor.

  5. Never judge a person’s integrity by how they look or sound.  Far too many investors who are wiped out by con artists later explain that the swindler “looked and sounded so professional."  Successful con artists sound extremely professional and have the ability to make even the flimsiest investment deal sound as safe as putting money in the bank.  Remember that sincerity in a voice, especially on the phone, has no bearing on the soundness of an investment opportunity.  Always do the necessary homework.

  6. Watch out for salespeople that prey on your fears.  Con artists know that many investors, particularly older investors, worry that they will either outlive their savings or see all of their financial resources vanish overnight as the result of a catastrophic event.  It's quite common for swindlers and abusive salespeople to pitch their schemes as a way to build up life savings to the point where such fears are no longer necessary.  Remember that fear and greed can cloud your good judgment and leave you in a much worse financial posture.  An investment that is right for you will make sense because you understand it and feel comfortable with the degree of risk involved.  High return almost always means high risk.

  7. Exercise particular caution if you have limited or no experience handling money.  Ask a con artist to describe his ideal victim and you're likely to hear "elderly widow or widower."  Many people now in their retirement years have limited knowledge about handling money.  They often relied on their spouses to handle most or all money decisions.  Those who have received windfall insurance in the wake of the death of a spouse are prime targets for con artists.  People who are on their own for the first time in years should always seek advice of family members or impartial professionals before deciding what to do with their money.

  8. Monitor your investments and ask tough questions.  Too many investors trust unscrupulous investment professionals and outright con artists to make financial decisions for them.  They then compound their error by failing to keep an eye on the progress of the investment. Insist on regular written reports.  Check the written information.  Look for excessive or unauthorized trading in your funds.  Don’t be swayed by assurances that such practices are routine or in your best interest.  Don’t permit a sense of friendship or trust to keep you from demanding this information. If you suspect something is wrong and you don’t get satisfactory answers, call the Securities Division and let us help.

  9. Look for trouble retrieving your principal or cashing out profits.  If a stockbroker, financial planner, or other individual stalls you when you want to pull out your principal or profits, demand to know why.  Since unscrupulous investment promoters have probably pocketed the funds of their victims, they will go to great lengths to explain why your savings are not available.  They may even pressure you to “roll over” non-existent profits into new and even more alluring investments. This will only further delay the fraud being uncovered.  If you're not investing in a product with a fixed term, such as a bond, you should be able to receive your funds or profits within a reasonable amount of time.

  10. Don’t let embarrassment or fear keep you from reporting investment fraud or abuse.  Investors who fail to report that they've been victimized often hesitate out of embarrassment. Older investors fear they'll be judged incapable of handling their own affairs and be forced into a nursing home or other facility.  Sophisticated investors don't want to admit that a smooth talker took them in.  Con artists know all about such sensitivities.
    They count on these fears preventing or delaying the time when the authorities will be notified about the scam.  It's true that most money lost to investment fraud is rarely recovered beyond pennies on the dollar.  In many cases, however, when investors recognized early that they'd been misled, they were able to recover some or all of their funds by being a “squeaky wheel”.  One of the best resources for investors who fear they have been victimized is the Securities Division of the Department of Financial Institutions.

Beware of “Reload” Scams 

Younger investors who are ripped off are fortunate in that they have the opportunity to restore some or all of their losses through new earnings.  Older investors are dealing with a finite amount of money that is unlikely to be replenished.  The resulting panic is well known to con artists.  So they have developed schemes to take a “second bite” out of their victims.  Faced with a loss of funds, some investors will go along with another scheme (allowing themselves to be reloaded).  The con artists promise to make good on the original funds that were lost and possibly even generate new returns beyond those originally promised. This is particularly disastrous for older investors.  Though their desire to make up lost financial ground is understandable, all too often the result is a loss of whatever savings they have left.

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