Reportedly, billionaire oil tycoon Robert Belfer has been impacted by investment fraud in three major scandals: Enron’s corruption, Bernie Madoff’s Ponzi scheme and now the collapse of cryptocurrency exchange FTX.
Belfer, 87, has survived multiple financial frauds, including losses of tens of millions from Madoff and billions from Kenneth Lay’s energy company. As reported by the Entrepreneur, Belfer is now at risk of losing a total of $34.5 million in Sam Bankman-Fried’s cryptocurrency company.
This begs the question: If even wealthy investors with teams of advisors can become victims of fraud, what chance do everyday people have to do any better? The answer is to manage our own personal finances. That doesn’t mean we should never seek professional guidance. It means we should never assume we as unprofessionals are not capable of participation and making decisions on our own behalf.
Here are three strategies to follow so you don’t fall prey to investment fraud.
NO. 1: NO HASTY MOVES
Even seasoned investors can fall for the “fear of missing out.” FTX reeled in many individuals who had no idea how cryptocurrencies operate. They assumed if the big cats were all in, it had to be legit.
If you feel concerned that an investment is not in your area of expertise, that’s a positive sign. It’s a clear indicator that you should steer clear. Here’s my personal rule of thumb: If I cannot explain an investment in 50 words or less, I don’t have sufficient information to make a reasoned decision.
Scam artists hope we’ll abandon all reason and careful examination to accumulate wealth. “Act now! Get in on the bottom floor! Who knows how long this will last?” Time is your greatest asset in investing, while haste your worst enemy.
NO. 2: CHECK THE REGISTRATION
While particular forms of fraud may be undetectable, most offer recognizable indicators if we will search for them.
Before making any investment, inquire with which financial institution it is registered. Next, go to that state’s official website to verify and determine if this is legitimate.
It is also crucial to verify if an individual or company has a license to sell investments, which is mandatory in most states.
If you need assistance verifying a company or person offering an investment, you can easily contact the Securities and Exchange Commission’s Office of Investor Education and Advocacy.
NO. 3: GET IT IN WRITING
For all legitimate investment opportunities, you should take your time, review the documentation and thoroughly educate yourself on the product. Don’t make any decisions based on verbal descriptions, explanations and promises. Get it all in writing.
The documentation should be readily available, clear and understandable if a company aims to attract investors. Exercise caution if you are puzzled or detect unrealistic, unbelievable claims that you cannot independently verify. Fraud salespeople count on exploiting your emotions, not guiding you through rational thought.
One last thing: Always remember that no credible equity investment ever guarantees a profit.
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