How to Protect Yourself Against Investment Fraud

While many people assume only millionaires are at risk of investment fraud, research conducted by the Pension Research Council found that one in 10 investors will be victimized by investment fraud at some point in their lives. According to AARP, older, active investors are most likely to fall victim to these investment scams. “Older people tend to be particularly targeted for investment fraud, much more so than younger people,” says Scott Krogmann, Area Investment Executive at Regions Bank.

According to Krogmann, investors are particularly vulnerable when going through key wealth events, such as receiving an inheritance, selling a piece of property, or going through an IRA rollover. Scammers view these events as opportunities and may use social connections or orchestrate encounters to win their victims’ trust. “These are times when we're most vulnerable to making decisions, which allows for fraud to be perpetuated,” Krogmann explains. In today’s landscape, there are a variety of investment fraud schemes that can trip up even the most educated investors. Some of the most common types of investment fraud include:

Affinity Fraud

In this type of scheme, the perpetrator leverages a personal or professional connection to gain the victim’s trust. They might encourage a friend or acquaintance to join them in a particular business deal or make an investment.

“If it sounds too good to be true, it probably is,” Krogmann says. He warns investors to be very wary of investment tips that promise high returns or come with a deadline. “If there is a time component, that should make anyone want to pump the brakes,” he says.

Promissory Note Scams

Promissory notes can be appropriate investment tools in a business setting, however the US Securities and Exchange Commission (SEC) notes that they are commonly used in scams involving individual investors.

Before investing in a promissory note, the SEC recommends validating that the investment is registered on the SEC's EDGAR database and that the seller has a verified securities license. According to the SEC, investors should be wary of guaranteed high rates of return, which is a common tactic used to lure unsuspecting victims.

Pump-and-Dump Scams

In these cases, an investment group promotes its own stock using false or misleading information, causing the stock price to increase. “It artificially inflates the value of the investment, which allows the fraudster to sell it at an inflated price, leaving you holding the bag,” Krogmann says. Keep in mind, these pitched opportunities often come in the form of hot stock tips from friends or acquaintances.

Ponzi Schemes

In these scams, fraudsters come up with a fictional investment asset, then use new investors to pay dividends to prior investors and create the illusion of solid returns. This often causes initial investors to promote the investment opportunity to friends and family, accelerating the fraud. Once the number of investors reaches capacity, there isn’t enough money to cover promised returns and the scheme collapses causing remaining investors to lose their money.

Advance Fee Scams

These are schemes in which the investor is asked to pay a fee to take advantage of an exciting investment that promises big returns. In these cases, the scammer takes the money and disappears.

How to Protect Yourself from Investment Fraud

Investment fraud comes in many forms — but with a bit of proactivity and caution, you can take steps to invest safely. Before making a new investment, be sure to always do your research. Stay wary of guarantees and risk-free returns and take extra caution when a friend or acquaintance approaches you with investment advice.

Additionally, you may consider consulting with a financial professional to help you make investing decisions. “Leveraging a financial planner is always going to be more appropriate than a friend who doesn't have the schooling, experience, and training to adequately address your specific concerns,” Krogmann says. “Doing anything less is like asking your fishing buddy for dental surgery advice.”

When determining whether an investment opportunity can be trusted, Krogmann suggests checking to verify that the investment advisor pushing the deal has a Series 7 license, which allows them to buy and sell investments on a client's behalf, and a Series 66 or 65 license to confirm that they are working in their clients’ best interests. “Any advisor should be happy provide that kind of information upfront,” Krogmann says. “If they don’t, that certainly would be a red flag.”

Finally, with business email compromise on the rise, it’s important to remain vigilant when communicating via email. Exercise extreme caution when it comes to email attachments or links and take care to only provide information to a verified and trusted partner or advisor. Should you receive a request for sensitive information via email, contact your broker directly via telephone to verify the legitimacy.

If you suspect that you have fallen victim to investment fraud, report it to the SEC online at or over the phone at 1-800-732-0330. In addition, you should also report the incident to your state’s Securities Commission. According to Krogmann, “By reporting these scams, you not only protect themselves, but anyone else who may potentially be a victim of this fraud in the future.”

For more fraud prevention tips, check out Episode 22 of Regions Wealth Podcast, “From Friend to Fraud: Spotting the Signs of an Investment Scam”.


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.