Since their inception, the Securities and Exchange Commission (SEC) and securities regulators around the globe have been telling investors to investigate before investing and to ask tough questions about the people who sell and manage the investments.

The SEC reports that a frequent ruse that fraudsters use involves assurances that an investment has been registered with the appropriate agency. The fraudsters will purport to provide the agency’s telephone number to verify the “authenticity” of their claims. But even if the agency does exist, the contact information almost certainly will be false, and instead of speaking with an actual government official, the call is answered by the fraudsters or their associates, who will give the company, the promoter and the transaction high marks.

Another trick involves the misuse of a regulator’s seal. The fraudsters copy the official seal or logo from the regulator’s Web site, or create a bogus seal for a fictitious entity and then use it on documents or Web pages to make the deal look legitimate. The SEC and other state and federal regulators do not allow private entities to use their seals. Moreover, the SEC does not “approve” or “endorse” any particular securities, issuers, products, services, professional credentials, firms, or individuals.

Here is some advice from the SEC on how to protect yourself against these and other deceptive tactics:

Deal only with “real” regulators. Check the list of international securities regulators on the Web site of the International Organization of Securities Commissions (IOSCO); for a directory of state and provincial regulators in Canada, Mexico, and the U.S.; look on the Web site of the North American Securities Administrators Association (NASAA). If someone encourages you to verify information about a deal with an entity that does not appear on these lists — such as the “Federal Regulatory & Compliance Department,” the “Securities and Registration Compliance” agency or the “U.S. Securities Registration Bureau” — you’re probably dealing with fraudsters. Legitimate contact information for the SEC is in the (SEC) Contact Us section and on the SEC Division Homepages.


Be skeptical of government “approval.” The SEC does not evaluate the merits of any securities offering or determine whether a particular security is a “good” investment. Instead, the SEC’s staff reviews registration statements for securities offerings and declares those statements “effective” if the companies have satisfied the disclosure rules. In general, all securities offered in the U.S. must be registered with the SEC or must qualify for an exemption from the registration requirements. You can check whether a company has registered with the SEC and download disclosure documents using the EDGAR database of company filings.


Look past fancy seals and impressive letterheads. Most people who use computers know how easy it is to copy images. As a result, today’s technology allows fraudsters to create impressive, legitimate-looking Web sites and stationery at little cost. Don’t be fooled by a glossy brochure, a glitzy Web site, or the presence of a regulator’s official seal. Again, the SEC does not authorize private companies to use its seal, even as a legitimate link to the SEC Web site.


Check out the broker and the firm. Always verify whether any broker offering to buy or sell securities is properly licensed to do business in your state, province, or country. If the person claims to work with a U.S. brokerage firm, call FINRA’s Public Disclosure Program hotline at (800) 289-9999 or visit FINRA’s website to check out the background of the individual broker and the firm. Be sure to confirm whether the firm actually exists and is current in its registration, and ask whether the broker or the firm has a history of complaints. You can often get even more information from your state securities regulator.


Be wary of “advance fee” or “recovery room” schemes. An increasing number of investment-related frauds target investors worldwide who purchase “microcap” stocks, the low-priced and thinly traded stocks issued by the smallest of U.S. companies. If the stock price falls or the company goes out of business, the fraudsters swoop in, falsely claiming that they can help investors recover their losses for a substantial fee, disguised as some type of tax, deposit, or refundable insurance bond. As soon as an unwary investor pays the “advance fee,” the fraudsters disappear leaving the investor with even higher losses. For more information about these types of frauds, read The Fleecing of Foreign Investors.