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U.S. Securities and Exchange Commission

Top Tips for Your Readers

Here are tips from the SEC to help your readers invest wisely and avoid costly mistakes.


*   Investigate Before You Invest
*   Top Ten Questions To Help You Avoid Trouble
*   Learn to Identify These Telltale Signs of Fraud
*   Avoiding Online Scams: Tips for Investors
*   Fraud In Cyberspace: Old Scams in a New Medium
*   Tips for Checking Out Online Newsletters
*   Internet Fraud: Investor Tips
*   Online Trading Tips
*   Choosing an Investment Professional
*   Cold Callers Must Follow These Rules 
*   Portrait of a "Boiler Room"
*   Publications for Investors

Investigate Before You Invest

Before handing over your hard-earned money, take the time to investigate. You should

Ask Questions   Call your state securities regulator to ask whether the investment is registered and if the broker and the broker's firm are licensed to do business in your state. You can find your state securities regulator in the phone book or through the North American Securities Administrators Association www.nasaa.org/about-us/contact-us/contact-your-regulator.

Know Your Broker   Ask your state's securities regulator or FINRA if they've received complaints or taken action against either the broker or the broker's firm. You can call FINRA toll-free at 800-289-9999 or visit the BrokerCheck website.

Know the Investment   How long has the company been in business? What are its products or services? Has the company made money for investors before?

Get the Facts in Writing   Don't get swept away by a sales pitch. Ask for and read carefully the company's prospectus and latest annual or quarterly reports. 

For more information about how to choose a broker, pick an investment, and look out for trouble, get copies of Ask Questions and other publications from the SEC at www.sec.gov or call to order publications at 800-SEC-0330.

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Top Ten Questions To Help You Avoid Trouble 

With any investment, whether recommended in person, by mail, telephone, or on the Internet, you should always slow down, ask questions, and get written information. Take notes so you have a record of what you were told in case you have a dispute later. Here are some questions to ask: 

  • Is the investment registered with the SEC and the state where I live? 
  • Is the person recommending this investment licensed with my state securities agency? Is there a record of any complaints about this person or the firm he or she works for? 
  • How does this investment match my investment objectives? 
  • Will the sales representative send me the latest reports that have been filed on this company? 
  • What are the costs to buy, hold, and sell this investment? How easily can I sell? 
  • Who is managing the investment? What experience do they have? Have they made money for investors before? 
  • What is the risk that I could lose the money I invest? 
  • What return can I expect on my money? When? 
  • How long has the company been in business? Is it making money, and if so, how? What is their product or service? What other companies are in this business? 
  • How can I get more information about this investment, such as audited financial statements, annual and quarterly reports, a prospectus?

To learn more about the questions you should ask before you invest, visit the SEC's Web site, www.sec.gov or call 800 SEC-0330. Order Get the Facts on Saving and Investing or Ask Questions.

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Learn to Identify These Telltale Signs of Fraud 

  • Pressure to invest before you've had an opportunity to think about or investigate the stock or investment 
  • Sales people offering "inside" or "confidential" information 
  • Claims of a "once-in-a-lifetime opportunity" or a "limited time offer" 
  • Promises of spectacular profits or "guaranteed" returns 
  • Assurances that the investment is "risk-free" or "as safe as a certificate of deposit" 
  • Reluctance - or outright refusal - to send you written information about the investment

To learn how to avoid fraud, visit the SEC's Web site, www.sec.gov or call 800 SEC-0330. Order Get the Facts on Saving and Investing or Ask Questions.

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Avoiding Online Investment Scams:  Tips for Investors 

You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet – whether it's on a company's website, in an online newsletter, on a message board, or in a chat room – you should assume it's a scam until you've done your homework and proven otherwise. Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking – and getting answers to – these three simple questions:

  • Is the investment registered?

    To find out, check the SEC's EDGAR database. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator. You'll find that number in the government section of your phone book. Or call the North American Securities Administrators Association (NASAA) at (202) 737-0900 or visit NASAA's website.

    Many online investment scams involve unregistered securities. One simple phone call can make the difference between investing in a legitimate business or squandering your money on a scam.

    Is the person licensed and law-abiding?

    Find out if the person or firm selling the investment needs to be licensed. Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. You can also get this information by calling FINRA's public disclosure hotline at (800) 289-9999 or visiting their website.

  • Does the investment sound too good to be true?

    If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. Watch out for claims of astronomical yields in a short period of time. Be skeptical of "off-shore" or foreign investments. And beware of exotic or unusual sounding investments, especially those involving so-called "prime bank" securities. To learn more about "prime bank" securities, visit the Division of Enforcement's Prime Bank Fraud Information Center on our website.

    Make sure you fully understand the investment before you part with your hard-earned money. Always ask for – and carefully read – the company's prospectus and latest audited financial statements.

For more tips on avoiding online fraud, read Internet Fraud: How to Avoid Internet Scams. You can get this brochure by calling the SEC's toll-free publications line at (800) SEC-0330 or visiting the "Internet and Online Trading" section of our website.

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Fraud In Cyberspace: Old Scams in a New Medium

Be wary of promises of quick profits, offers to share "inside" information, and pressure to invest before you have an opportunity to investigate. 

Be careful of promoters who use "aliases." Pseudonyms are common on-line, and some salespeople will to try to hide their true identity. Look for other promotions by the same person. 

Words like "guarantee," "high return," "limited offer," or "as safe as a C.D." may be a red flag. No financial investment is "risk free" and a high rate of return means greater risk. 

Watch out for offshore scams and investment opportunities in other countries. When you send your money abroad, and something goes wrong, it's more difficult to find out what happened and to locate your money. 

If a company is not registered or has not filed a "Form D" with the SEC, call your state securities regulator. 

Remember, if it sounds too good to be true, it probably isn't true! 

To learn more about the dangers of investing over the Internet, get the SEC's brochure on Internet Fraud at www.sec.gov or call 800 SEC-0330.

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Tips for Checking Out Online Newsletters 

Find out whether the newsletter received payment to "tout" or recommend the stock and, if so, what it received and from whom.

Read carefully what the newsletter says about payments it receives.

Be suspicious of newsletters that do not specifically disclose these items: who paid them, the amount, and the type of payment. Legitimate on-line newsletters that have been paid to tout stocks will clearly and specifically tell investors who paid them, the amount, and the type of payment. Look for their disclosure statements in articles about particular companies or in a list or chart on their websites.

Independently investigate the company or investment opportunity.

Be wary of anyone who encourages you to invest in small, thinly-traded stocks that aren't well known and don't file reports with the SEC. Assume that everything you read about those companies in an on-line bulletin board, newsletter, or chat room is untrue until you prove by your own independent research that it isn't. 

Don't invest in small, thinly-traded companies unless you're prepared to lose every penny.

Because small, thinly-traded companies are usually the most risky investments that you can make, you should always get as much written information as you can from the company and other independent sources. The SEC and your state's securities regulator should always be your first stops, but you may also want to visit your local library and talk with the librarian about other sources of information. There are also a number of commercial services that provide a constant stream of information about the financial condition of companies.

Check with the SEC or your state securities regulator to see if the newsletter has ever been in trouble.

Whenever the SEC sues a newsletter or stock promoter, we issue a "litigation release" and post it on our web site. Check the Enforcement Division's home page to see whether we've brought action against a newsletter or stock promoter who's touting a stock. You can also search the SEC's non-EDGAR database for this information.

Your state securities regulator can tell you whether the broker pushing the stock or the broker's firm has a disciplinary history by checking the Central Registration Depository (CRD). You can also obtain a partial disciplinary history by contacting FINRA's toll-free public disclosure hot-line at (800) 289-9999 or visiting their website.

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Internet Fraud: Investor Tips 

Download and print a hard copy of any on-line solicitation that you are considering. Make sure you catch the Internet address (URL) and note the date and time that you saw the offer. Save this in case you need it later. 

Don't assume that people on-line are who they claim they are. The investment that sounds so good may be a figment of their imagination, or they may be paid to promote it.

Ask the online promoter whether, and how much, they've been paid to tout the opportunity.

Ask the on-line promoter where the firm is incorporated. Call that state's secretary of state and ask if the company is incorporated with them and has a current annual report on file. Also check the SEC's EDGAR database.

Don't believe everything you read on-line. Take the time to investigate a possible investment opportunity before you hand over your hard-earned money.

Check with your state securities regulator or the SEC and ask if they have received any complaints about the company, its managers, or the promoter.

Ask for other sources of information at your local public library. For example, there are resources that provide information about the company, such as a payment analysis, credit report, lawsuits, liens, or judgments.

Before you invest, always obtain written financial information, such as a prospectus, annual report, offering circular, and financial statements. Compare the written information to what you've read on-line and watch out if you're told that no information is available. 

Don't assume that your access provider or on-line service has approved or even screened the investment. Anyone can set up a web site or advertise on-line, often without any check of its legitimacy or truthfulness. 

Check with a trusted financial advisor, your broker, or attorney about any investment you learn about on-line. 

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Online Trading Tips 

Take a look at our publication, Tips for Online Trading: What You Need to Know About Trading in Fast-Moving Markets.

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Choosing an Investment Professional 

Here are some questions you should ask when choosing an investment professional:

  • What training and experience do you have? How long have you been in business? 
  • What is your investment philosophy? Do you take a lot of risks or are you more concerned about the safety of my money? 
  • Describe your typical client. Can you provide me with references, the names of people who have invested with you for a long time? 
  • How do you get paid? By commission? Amount of assets you manage? Another method? Do you get paid more for selling your own firm's products? 
  • How much will it cost me in total to do business with you?

Your investment professional should understand your investment goals, whether you're saving to buy a home, paying for your children's education, or enjoying a comfortable retirement. 

Your investment professional should also understand your tolerance for risk. That is, how much money can you afford to lose if the value of one of your investments declines? 

An investment professional has a duty to make sure that he or she only recommends investments that are suitable for you:  investments that make sense for you based on your financial goals, other securities holdings, your financial situation, your means, and any other information that your investment professional thinks is important. 

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Cold Callers Must Follow These Rules 

When people from the securities industry call to sell you something, they must: 

Call Only Between 8:00 a.m. and 9:00 p.m.

Say Who's Calling and Why

Cold callers must promptly tell you

    • their name, 
    • their firm's name, address, and telephone number, and 
    • that the purpose of the call is to sell you an investment. 

Put You on Their "Do Not Call" List, If You Ask

Every securities firm must keep a "do not call" list. If you want to stop sales calls from that firm, tell the caller to put your name and telephone number on the firm's "do not call" list.

Treat You With Respect

Cold callers can't threaten, intimidate, or use obscene or profane language. They can't call you repeatedly to annoy, abuse, or harass you.

Get Your Written Approval Before Taking Money Directly From Your Bank Accounts

Tell You the Truth

People selling securities must tell you the truth. Brokers who lie to you about any important aspect of an investment opportunity violate federal and state securities laws.

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Portrait of a "Boiler Room"

The SEC and state securities regulators have investigated – and taken action against – numerous firms and brokers who use high-pressure tactics to sell securities. In a recent case, "boiler rooms" were described this way:

The firm was operating a classic boiler room. The brokers sat "cheek by jowl" in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm's "house stock" . . . were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and were told to rely on the firm's research and representations. . . .

After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone. The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. . . .

One broker conceded that he falsely identified another salesman . . . as the firm's research analyst, and gave a fictitious description of the purported analyst as "fat, bald, and badly dressed." He stated that the reason for the firm's policy of discouraging customer sales was its desire to avoid negative price pressure on house stocks, a circumstance that he did not disclose to customers.

-- From an opinion in a recent SEC enforcement case

Brokers in one boiler room defrauded investors by 

    • lying about the firm's reputation and expertise, claiming it had a "research department" that analyzed stocks when it didn't, 
    • refusing to say anything negative about the stocks they pushed, including the "risk factors" discussed in the prospectus, 
    • making baseless price predictions, promising that certain stocks would double in price within a short time period, 
    • impersonating other salespeople at the firm, and 
    • discouraging customers from selling the stocks they recommended without regard to the customers' best interests.

Knowing how boiler rooms operate, you should be extremely skeptical when considering any investment opportunity a stranger tries to sell over the phone.

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Publications for Investors

Check the following publications to get a wide range of tips to help your readers invest wisely and avoid scams. 

Ask Questions  Questions investors should ask about their investments, the people who sell them, and what to do if problems occur.

Internet Fraud  This alert tells investors how to spot different types of Internet fraud, what the SEC is doing to fight Internet investment scams, and how to use the Internet to invest wisely.

Microcap Fraud  This brochure tells investors about microcap stocks, how to find information, what "red flags" to consider, and where to turn if you run into trouble. 

Financial Facts Tool Kit  This provides a vast array of facts and tools to help investors begin planning for a secure financial future.

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Modified: 04/17/2009