INVESTMENT FRAUD AND WHITE-COLLAR CRIME

1. If an investment sounds too good, it likely is; do some research before committing your dollars

2. Never commit funds based on a “cold call” from an unknown broker or brokerage; it may well be a boiler room operation

3. Beware of the deal that requires a quick response on your part

4. Be skeptical of securities offered at substantial discounts from the prevailing market investment of comparable type

5. Be alert to transactions that involve secretive foreign aspects such as off-shore financial institutions

6. Watch out for unusual delays by brokers in making delivery of your securities or your investment proceeds; you may be caught in a “bucket shop” operation or in the misappropriation of your assets

7. Be suspicious if transaction confirmations do not arrive promptly.

8. Keep an eye out for evidence of excessive buying and selling by your broker; periodically check through your trades of the past couple of years

9. Buying and selling should be based on sound reasoning, not the whim of the broker

10. Seek out good professional investment advice. A good broker is a valuable resource. To find one, ask for a referral from someone you trust who is also experienced in investment

11. Always check the financial soundness of the issuer of fixed-yield investments in Standard & Poor’s, Moody’s, or similar agencies, whether the issuer or instrument or a bank or S&L CD, municipal or corporate bond, or other investment

12. If the net real return (the rate of return minus inflation rate) from a fixed-yield investment is over 3 to 4 percent, examine the investment very carefully before taking the plunge

13. When buying stocks, determine whether your account representative is a broker-dealer: the latter buy and sell for their own accounts and therefore have a vested interest that may seriously bias the advice you are getting

14. When first opening an account, obtain the firm’s recent financial statements, and be cautious of doing business with those having net capitalization of under $ 1 million

15. In regard to new account at unknown firms, always request evidence that both the firm and the broker are licensed. Inquire about the number of years in business, as well as the experience of the broker and/or lesser-known firms. Get bank references, and check with regulatory agencies

16. If the brokerage also has an investment banking division, find out the firm’s policy about recommending stocks when there is potential for conflicts of interest. Inquire not only about the institution’s underwriting but also about senior partners who may serve on the boards of various companies having publicly traded stock

17. Although the FDIC and FSLIC insure deposits in banks and S&Ls, it is wise to obtain a copy of the institution’s recent balance sheets, since the government auditor’s roster of “problem banks” is not readily available. Certainly, split any joint accounts over $100,000 into separate ones if at the same bank

18. In regard to “penny stocks” of new ventures, insist on seeing the written prospectus, no matter how sweet the deal seems or the sense of urgency that you are given

19. Always ask the broker how many shares or penny stocks are outstanding, how many employees the company has, and the company’s record of profitability, if any

20. When you receive the prospectus, look to see if a substantial portion of the underwriting will be siphoned off to pay expenses accrued by the promoters/principals before going public, to pay excessive salaries and the like. Look at the intended use of the funds and the associated planning horizon to see if additional offerings or dept instruments need to be floated soon

21. Examine not only salaries but also the compensation in the form of stock to be given to officers

22. Scrutinize the experience of the officers, directors, and promoters; determine their track record in similar deals and in comparable markets. Invest only with well-established investment managers with proven long-term track records

23. If not in the prospectus, any especially alluring claims about the deal should be backed up in writing by the underwriter/broker. Look not only for what is said but also for what is not said

24. In new, diversified investment trusts, watch out for the possible unloading into the trust portfolio of one or more “dogs” previously held by the trust organizers; again, obtain and evaluate the prospectus first

25. Remember that no matter how sophisticated the offering and associated financial jargon may sound, any nitwit or criminal with enough perseverance can float a public corporation

26. Remember that in most states, anyone, including a charlatan, can call him- or herself a financial adviser (with or without a newsletter), since few states have licensing procedures like those for stockbrokers, real estates brokers, tax attorneys, CPAs, and the like. Whether you deal with a licensed or an unlicensed individual, be hard-nosed, and base your investment decisions on recent historical results, not simply reputation

27. To reduce risk, use an investment strategy that diversifies by institution, by investment type, and by issuer within these financial alternatives, and by commitment over time, rather than just by lump sums

28. Remember that the key role of agencies like the SEC and Federal Reserve Board is to try to minimize flagrant abuses in their respective jurisdictions. They cannot prevent you from being imprudent or criminally victimized. Their concerns are strongly biased in favor of strengthening the public’s confidence in the investment markets and banking system.