Every legitimate investment involves some degree of risk, but fraudulent schemes have warning signs that you can watch for.

Be skeptical when someone promises:

1. Guaranteed profits
2. No possibility of losing money
3. High returns with very little risk
4. A fixed return regardless of market conditions

Generally, investments offering greater potential returns also involve greater risk. The words “guaranteed,” “risk-free,” and “can’t lose” should cause you to slow down and investigate.

Financial markets fluctuate.

Even skilled investment managers experience periods of positive and negative performance. An investment that reports nearly identical gains every month — regardless of what stocks, bonds, interest rates, or the economy are doing — may deserve additional scrutiny.

Overly consistent investment performance is specifically identified by the SEC as a potential Ponzi scheme warning sign.

If the investment is legitimate, you should be able to receive a reasonably clear explanation of:

1. What you own
2. How the investment is expected to make money
3. What risks you’re accepting
4. When you can access your funds
5. What fees and expenses you will pay

Be cautious when the promoter claims the strategy is too complicated to explain or must remain secret because it is “proprietary.”

Complexity alone does not prove fraud, but refusing to provide understandable information or written documentation is a serious concern.

A professional-looking website, expensive office, community reputation, or impressive title does not prove that someone is properly licensed.

Before investing, independently verify the background and registration status of both the person and the investment.

Investors can research securities professionals through FINRA BrokerCheck and investment advisers through the SEC’s Investment Adviser Public Disclosure database. FINRA recommends reviewing credentials, employment history, customer disputes, regulatory actions, and other potential warning signs.

Fraudsters do not want you to conduct independent research.

They may say:

1. “This opportunity closes tonight.”
2. “Only a few spots remain.”
3. “You need to transfer the money immediately.”
4. “You’ll miss the return if you wait.”
5. “Do not discuss this with anyone else.”

A legitimate financial professional should give you time to review the investment, ask questions, consult your attorney or tax professional, and obtain a second opinion.

The Federal Trade Commission (FTC) identifies pressure to act quickly and the discouragement of independent research as major warning signs of investment scams.

Withdrawal problems are among the most serious warning signs.

The promoter may:

1. Delay your payment repeatedly.
2. Encourage you to roll over your profits.
3. Offer an additional bonus for leaving your money invested.
4. Create unexpected penalties or administrative requirements.
5. Stop responding to calls and emails.

Occasional administrative delays can occur with legitimate investments, but repeated excuses or unexplained restrictions require immediate attention.

Be careful when you cannot obtain basic documents, such as:

1. Offering materials
2. Account statements
3. Audited financial statements
4. Custodial records
5. Investment agreements
6. Fee disclosures
7. Tax documents

Review statements carefully for inconsistencies, mathematical errors, unexplained transactions, unusual account values, or assets you cannot independently verify.

The FTC warns that refusing to provide detailed written information is a common sign of investment fraud. 

Ask where your assets will actually be held. Whenever possible, investment assets should be maintained with a reputable, independent custodian.

Be extremely cautious when instructed to:

1. Write a check directly to the advisor.
2. Transfer money to a personal bank account.
3. Send cryptocurrency to an unknown wallet.
4. Pay an unrelated company.
5. Provide cash.
6. Transfer funds overseas without a clear business purpose.

An independent custodian does not eliminate every risk, but it does create separation between the person providing advice and the organization holding the assets.

Ponzi schemes frequently spread through communities where trust already exists. This is sometimes called affinity fraud.

A promoter may target members of:

1. Churches or religious organizations
2. Veteran groups
3. Professional associations
4. Cultural communities
5. Country clubs
6. Charities
7. Neighborhood organizations
8. Friends and extended families

A recommendation from someone you know is not a substitute for independent due diligence. The person recommending the investment may also be an unsuspecting victim.