Reducing the Risk of Investment Fraud - SEC Recommendations

As you may have read through cases summarized in other articles, you may still be amazed that anyone could have fallen for investment scams. But the truth is that in each case church members and leaders found the investment scheme to be legitimate, and did not realize that they were being victimized. Are there specific steps that church members and leaders can take to reduce the risk of financial fraud? Fortunately, the answer is yes. A first step is to be familiar with the four specific kinds of investment fraud described above (pyramid schemes, Ponzi schemes, Nigerian investments, and prime bank investments). A second step is to review the actual cases summarized above. Third, review the following recommendations from the United States Securities and Exchange Commission.

(1) if it sounds too good to be true, it is

High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. 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 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. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky. And that means you might lose money.

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Posted: March 1, 2004
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