Investigate Before You Invest: Ten Do’s and Don’ts for Investors

This Investor Alert is the first in a new quarterly program jointly sponsored by the Council of Better Business Bureaus and the North American Securities Administrators Association designed to expose investment frauds to the public and provide useful information on how to avoid the often sophisticated and unlawful schemes that prey on investors.

Each quarter the Alert will explain the latest schemes identified by Better Business Bureaus and state and provincial securities regulators. This first release does not focus on a single fraud. Rather it is intended to give sound, basic advice to those looking for ways to invest their money.

Following these ten guidelines will go a long way in protecting oneself from unscrupulous persons who would defraud investors.

1. Be cautious when strangers make contacts by “cold” phone calls, unannounced visits to your home or contacts from mailing lists. Phone calls from strangers offering get-rich-quick schemes can be a sign that a “boiler room” scam is on the line. Operators rent offices with impressive addresses and hire unlicenced salespeople to work banks of phones calling individuals from lists they buy. They promise fast profits and usually do not deliver.



2. Question strongly fantastic promises of extraordinary returns of 25%, 50% or even 100% on your money in short time periods. Too-good-to-be true offers usually are just that.



3. Shy away from high pressure sales techniques requiring hurried money commitments because “tomorrow will be too late.” Some fraudulent schemes have used messengers to pick up investors’ checks almost as soon as they were off the phone; this was the last contact the victims had with the companies.



4. Avoid investments where the seller has little or no written information about the company or written information about past performance. But remember even printed materials, no matter how slickly presented, can be bogus; read all materials carefully, ask questions and check with experts.



5. Be wary of investments sold on the basis of rumors, tips or supposedly “inside information.”



6. Do ask the seller to give you written information about the investment, including the prospectus or offering circular and financial statement. Read them or get help reading them before you sign a purchase order to pay for an investment. Such information is required for many types of investments, including stock offerings, limited partnerships, franchise offerings and mutual funds.



7. Do get competent help. Consult with your registered stock broker, banker, lawyer, accountant, or real estate agent. Check out the company with your Better Business Bureau, securities administrator or a knowledgeable friend or family member.



8. Do contact your government agencies to find out if a company or individual is properly licensed to do business or has any history of violating the law. Failure to properly register or a history of trouble with authorities should be a red flag to any prospective investor.



9. Do deal with established businesses whose reputations are known in the community.



10. When in doubt, wait. If something seems fishy, if your questions are not satisfactorily answered, don’t commit your money. Remember, even with legitimate investments there is always the risk of losing money; there is no point in stacking the odds against you by putting your hard-earned savings in an investment that may not be on the up and up.

The security administrator in your state, province or territory is responsible for policing investments for fraud. If you believe you have encountered an investment fraud, contact the securities administrator in your state. For a phone number or address, telephone the North American Securities Administrators Association at (202) 737-0900. Contact information is also available on the association’s web site at www.nasaa.org.

The Council of Better Business Bureaus and Better Business Bureaus in the United States and Canada answer inquiries on companies doing business in the areas they serve. Before putting money in any investment plan, it is a good idea to contact your Better Business Bureau for a reliability report on the company you intend to deal with.

Issued January 1983