Red Flags of Investment Fraud

1. Complex Investment Strategies

Never invest in something you don’t have a general understanding on how the investment works.  Scammers use complex language and supposed investment techniques to explain their unusual success.  This is used to confuse the investor and make them believe it is legitimate.  It is important that you understand any investment you’re seriously considering—including what it is, what the risks are and how the investment makes money.

2. Missing Documentation

If someone tries to sell you a security with no documentation—that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—he or she may be selling unregistered securities. The same is true of stocks without stock symbols.

3. Failure to Prove Rights or Ownership

When dealing with investments in oil and gas, and real estate be sure that the company can prove they have legal rights to the minerals and/or actual ownership of the property being developed.  Many scams will base the investments on rights or real estate in which they have no legal interest.

4. If It Sounds Too Good to be True, It Is

The catch phrases to watch for include, “Huge return and almost no risk”, “A no lose opportunity”, “Guaranteed winner with little or no risk”, and numerous other statements that tout high returns and little or no risk

5. Beware of Unexpected Unsolicited Offers

-  phone calls, letters, email messages, and even personal visits from anyone offering a quick-profit, low-risk opportunity that requires your immediate attention. Don’t be afraid to hang-up, ignore, delete, or close the door when you are being something you did not ask to receive. 

6. High Pressure Sales Tactics

Common examples of high pressure sales pitches include:

  • "Act now, there is a waiting list of others who want to invest."
  • "Hurry, or it will be too late."
  • "Don't delay, this investment is as safe as a CD."  (certificate of deposit)
  • “Everyone is buying it.”
7. The Promise of Incredibly High Profits

Look with doubt on promises that you can double your money or earn a high return on your investment within a short period of time.

8. Claims that an Investment is Risk-Free, Low Risk, or “Secured” and Provides a High Return

 Be suspicious of risk-free, low-risk or 'secured' investments that promise high returns.  

9. Be Cautious of Guarantees

Be suspect of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk.

10. Watch Out for People Who Prey on Your Fears

It is common for swindlers to pitch their schemes as a way to eliminate your financial fears for the future. Fear and greed can cloud your good judgment.

11. Be Extra Cautious of Investments or Products Endorsed by Groups

Many swindlers will attempt to obtain the endorsement of churches, fraternal and other organizations to lend credibility to their sales efforts. Just because an investment is endorsed by some group does not mean it is legitimate!

12. Watch Out for Ponzi Schemes and Hi-Yield Scams

Ponzi schemes and Hi-Yield scams have been prominent in the news the past few years and continue to be major frauds being conducted on the investing public.  These frauds can and will use all of the tactics listed above.  Oil and gas investments, and real estate investments are easy products for scammers to use in Ponzi and Hi-Yield schemes.

13. Free Investment Seminars

Fraudsters often try to lure investors through free investment seminars, figuring if they do a small favor for you, such as supplying a free lunch, you will do a big favor for them and invest in their product. There is never a reason to make a quick decision on an investment. If you attend a free lunch, take the material home and research both the investment and the individual selling it before you invest. Always make sure the product is right for you and that you understand what you are buying and all the associated fees.

14. Unregistered Securities and Unregistered Dealers

Avoid or use extreme caution when dealing with unregistered securities or with unregistered dealers.  There are legal ways and exemptions that allow for the selling of unregistered securities, and at times selling of securities by unregistered dealers, however, these circumstances are limited and caution should be used.  The activity taking place in the Bakken lends itself numerous opportunities for scammers to commit fraud through the use of unregistered securities and unregistered dealers.


For Assistance Contact:

Adam Montgomery, Examiner / Investigator, Email Adam

Phone: (701) 239-7184; ND Toll Free: (800) 297-5124