Fraud Prevention

If it sounds too good to be true, it probably is.

Recently, AARP posted a blog warning its members about a company that took $2.2 million in fees from consumers who were struggling with credit-card debt and in need of help. Instead of helping those consumers, the company's owner and employees used the cash to buy luxury car leases and other goods, according to a federal indictment, which stated that the firm charged consumers illegal upfront fees for debt-settlement services that never materialized.

Not only did the fraudulent activities push roughly 1,000 consumers further into debt, but some of them even had to file for bankruptcy. Unfortunately, these individuals are not alone. According to AARP, the number of scams targeting Americans who are at or near retirement is on the rise. And even though many of the scammers' targets are college educated and money savvy, the former are still finding ways to break through those barriers and defraud consumers.

In The Face of Investment Fraud, the Financial Industry Regulatory Authority (FIRA) says research has "shattered the stereotype of investment fraud victims as isolated, frail, and gullible," and points out that many of these victims are:

  • Self-reliant when it comes to making decisions
  • Optimistic
  • Above-average in financial knowledge
  • Above-average in income
  • College-educated
  • Recently experienced a recent health or financial setback
  • Open to listening to new ideas or sales pitches

What to Watch out For

The good news is that there are ways for seasoned investors to protect themselves from financial fraud. One of the easiest strategies is to simply know when a deal or offer is "too good to be true" – something that scam artists work very hard to cover up with promises of quick, plentiful riches. "There's no bright line. Investment fraudsters make their living by making sure the deals they tout appear both good and true," states the FIRA in its report, which highlights these common tactics to watch out for:

  • The "Phantom Riches" Tactic – dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 monthly in income."
  • The "Source Credibility" Tactic – trying to build credibility by claiming to be with a reputable firm, or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."
  • The "Social Consensus" Tactic – leading you to believe that other savvy investors have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in—and so is my mom and half of her church—and it's worth every dime."
  • The "Reciprocity" Tactic – offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now—half off."
  • The "Scarcity" Tactic – creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."

Protecting Yourself

Seasoned investors who suspect any or all of the above tactics are being used on them should close the conversation by simply saying, "No, I'm not interested." If this doesn't end the conversation, tell the alleged scammer that you are going to consult with your attorney, financial planner or other professional about the proposal before making any decisions. FIRA also advises consumers to turn the tables and ask a few of their own questions, such as:

  • Are you and your firm registered with the Financial Industry Regulatory Authority (FINRA)?
  • Are you registered with the U.S. Securities and Exchange Commission (SEC)?
  • Are you registered with a state securities regulator? If so, which one(s)?
  • Is this investment registered with the SEC or my state securities regulator?

Investors can verify the answers by checking the seller's background on FINRA's website or by calling (888) 295-7422. Other good resources for investors to explore include the SEC's Investment Adviser Public Disclosure Database, the North American Securities Administrators Association, and the National Association of Insurance Commissioners. Finally, you can also check out and/or confirm a sales pitch using the SEC's EDGAR company filing database.

* Investments in securities and insurance products held in trust accounts are not FDIC-insured, not deposits of Regions Bank or its affiliates, not guaranteed by Regions Bank or its affiliates, not insured by any federal government agency, and may go down in value.


This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.