Important Legal Tips Investors Should Follow to Avoid Frauds


What happens when you lose money in an investment? What happens when your broker decides to defraud you of your hard-earned money? We all know that investments are extremely important. It is an extremely great idea due to its multiple benefits that include wealth accumulation and financial safety, among other things. However, there are unfortunate situations where investors fall into the wrong hands and do business with fraudsters. Therefore, investments demand proper attention and maximum caution to not fall victim to the hands of fraudsters. This article aims to point out tips meant to serve as preventive measures to avoid being a victim of fraud as an investor. 

How Do I Avoid Being Defrauded?

To not fall victim in the hands of fraudsters, there are extremely important things and rules one must diligently adhere to as it is capable of drastically helping investors avoid, identify, and be wary of fraudsters and all types of investment scams. These include:

Ask Questions

As an investor, it is very much within your rights to ask questions about anything you are uncertain about. Fraudsters hope that you do not run an investigation on them before investing your money or resources in whatever scheme they are bringing to his. It is your responsibility to fish them out by doing proper research and investigation about them before committing your monies. It is important to note that it is not enough to ask for more information or references, as they already position themselves properly and can sound extremely convincing. Individuals selling investments in certain states need to have an operating license by the State Department of Financial Institutions (DFI). You could always try to make inquiries from them, and always remember the fraudsters have no incentive to set you straight. You must take your time to do your independent research. 

Employ The Services of a Legal practitioner

Although many are ignorant of this, there are properly trained lawyers who specialize in investment law. After deciding you want to invest, it is necessary to get in touch with investment fraud lawyers. They know the right steps to take and can easily identify a fraudster and warn you against making such a bad investment. Also, these experienced lawyers can help you out if brokers, advisors, and investment firms mismanage tour funds, leading to losses.

Ignore Unsolicited Messages

If you get message board postings, unsolicited emails, and company announcements, don’t use them as the sole basis for investing. These messages are meant to serve as bait to lure you into falling into their trap under the guise of investment. However, suppose such advertisements are consistent and appeal to you. In that case, it is important to run a proper background check that entails the company’s business and its products or services before investing. You could also check for the company’s financial statements on the SEC’s EDGAR filing system. You can find information on many investments on EDGAR as well.

Know The Salesperson

You should endeavor to spend time properly checking out the person touting the investment before you invest. Even in situations where you already know the person socially, a little more check wouldn’t hurt. Always ensure that you determine whether the securities salespeople who contact you are licensed to sell securities in your state, and whether they or their firms have had run-ins with regulators or other investors. 

Be Wary of Unsolicited Offers

Always be very careful whenever you receive an unsolicited pitch asking you to invest in a company or see it constantly praised online, but encounter difficulty in gaining access to current financial information about it from independent sources. It could be a “pump and dump” scheme. You should apply so much caution if foreign or “offshore” investment recommendations come up. In situations where things go wrong, it is much more difficult to find out what happened and locate money sent abroad. Con artists know what appeals to people. Anything that sounds too good to be true usually is. The higher the return, the higher the risk. No investment is completely risk-free.

Protect Your Online Space

Online and social marketing sites are breeding grounds for both old and budding fraudsters. You must always protect your online activities and social media accounts as various scams are being promoted online now through social media daily. Treat any investment opportunity you see advertised online with skepticism. Do your research.


As an investor looking to invest, it is important to have sufficient knowledge before paying money. You also have to be very cautious as there are different types of fraudsters with different techniques. However, if you look properly, there are red flags that are meant to signal you.