In its most basic form, insider trading, defined as illegal trades, becomes illegal with insiders violate confidentiality and sell or share information to an outsider. There has been much debate on this topic. The article below from the FINRA’s website offers some great advice.
Avoid Fraud
Even if you have never been subjected to an investment fraudster’s sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go “where the money is”—and that means targeting older Americans who are nearing or already in retirement.
Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you’ve been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.
To entice you to invest, fraudsters use high pressure and a number of “tricks of the trade.” Here are some common tactics:
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 a month 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 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.” Read full article here…
Unfortunately Investment fraud is more prevalent than you might think. Staying informed and keeping an eye out for “inconsistencies” will make all the difference.
We found another great article here…https://www.sec.gov/oiea/investor-alerts-bulletins/ia_5redflags.html
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