Contending with today's investment fraud is a challenge - when investors lose control over funds it becomes a contributing force. When an investor has complete control over funds, as is the case with an Individual Managed Account, no outside person or company can remove the assets. The safety factor is therefore increased substantially thus avoiding exposure to investment fraud.
Bernie Madoff showed the world that the SEC, celebrities and highly educated investor clients, could all be duped by a glossy front window, glowing testimonials and hidden in-house accounting.
7 Ways to Avoid Investment Fraud
Common sense is every rational investor's biggest ally, when evaluating a potential investment. When all the complicated math, terms, salesmanship and conditions are removed- does the investment still make sense? The following questions may help investors avoid or prevent investment fraud and to make informed decisions before committing funds.
- Is the return too high? - Warren Buffet's Berkshire Hathaway shareholders had a 16.1% average annual return over the previous ten years. If Buffet is arguably the world's best investing mind, then a 2% per month offer should be thoroughly scrutinized for flaws.
- Is the auditing done by an independent company? - When an investment has no proof of independent auditing, a red flag should go up.
- Is there a rush to have the investor commit funds? - If an investment is stable and more importantly legitimate, high pressure sales techniques, designed to "hurry-up" the investor, are usually another sign of problems.
- Do the return statements match the style of trading? - When trading tactics are inconsistent with return reports, something may be amiss.
- Is the investment regulated and is the latter verifiable? - Having an outside, independent investment regulatory agency or government securities regulatory arm in place to oversee the rules is helpful to say the least. Whether it is heavily regulated or not, an outside watchdog is important. Investment fraud civil and criminal penalites have increased sharply in the U.S. - with Canada as of 2009 contemplating similar changes through stronger sentencing guidelines.
- Is a personnel and/or company background check possible? - If the personnel or company cannot be investigated for past discretion, track records or current credentials, this is not helpful.
- Is diversifying funds being discouraged? If the investor is asked to place all of his/her eggs in one basket this may leave assets vulnerable to enormous, or worse yet - total loss.
Despite all the red flags mentioned, safe and legitimate investing may still be taking place. However, if one wants total peace of mind, doing thorough research is essential. These points are common sense and of course should not be construed as investment advice. They furthermore cannot guarantee the avoidance of investment fraud. However, they can increase the likelihood of informed decisions.
Inside the Mind of a Investment Fraud Criminal
The reason fraudulent companies or money managers are sometimes difficult to detect is because they camouflage as closely as possible to legitimate investments.
Most investing scenarios require the investor to sign off, allowing an outside entity to control assets. However, if an investor controls the funds there is little appeal for con artists, thus preventing investment fraud at the root core. A con artist's bread and butter is in having control of an individual's assets. Once financial control is established, late payment excuses, red herrings and other sleight of hand techniques are commonly used. All are usually signs that investment fraud has become a reality.
If an investor suspects fraud, reacting quickly to avoid further loss is important. Investment fraud attorneys and government oversight agencies should be contacted as soon as possible.
Individual Managed Account Owner Retains Control of Funds
Many people would prefer to have someone else manage their funds, rather than trading solo. This can still be accomplished without losing control over assets, through the use of what is known as a Managed Account. It stands to reason that one of the safest means of investing would be to retain control of all funds. If an individual feels unhappy with the ongoing trading or ROI, he/she simply informs the Account Manager that all trading is to cease. The investor can then go a step farther, by requesting that all remaining assets are to be returned. The investor has effectively avoided the potential of investment fraud by not signing over the right to withdraw funds to someone else.
Types of popular managed accounts include Forex managed accounts, Commodities and Futures. Brokerage fims will require an investor to sign a Limited Power of Attorney agreement, thus allowing a money manager or trader to trade the account on behalf of the owner of the account (the investor). The manager is never given access to the investor funds - only the owner of the account may withdraw funds.
How can a manager commit (removal of funds) investment fraud when he/she has no access to the investor's funds?
In addition, an investor can request a forex demo account, which enables the investor to monitor the skills of a manager before committing any funds. Testing a trader's skill is an important step in knowing what to reasonably expect in the future.
There are Many Legitimate Investment Firms
It should be noted that many hard working, reputable investing companies, hedge funds etc. are currently generating returns for millions of people around the globe every single day. These companies do not engage in investment fraud, in fact they avoid it - they understand that longevity over a fast buck is the prime target.
As is the case with all professions, from judges to janitors, financial or investment fraud can and will continue to occasionally take place- provided that the short-cuts for material gain remain within reach.
Additional online resources - protection against financial fraud.
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