When Opportunity Knocks, Be a Little Cagey
The most important thing to remember before investing is that if an opportunity sounds too good to be true, it probably is. Before giving money to anyone offering an investment program, consider these suggestions (based on tips from county, state and federal investment fraud fighters) and obtain answers to the following questions:
- Find out how the sales person obtained your name. Did he or she purchase a customer mailing list, call you at random from the phone book, or did a friend invest and give them your name?
- Be wary of high-pressure sales tactics. If an opportunity is legitimate, it will be around after you have taken the time to review it. If you are told you must decide immediately, forget it.
- Don’t be greedy. A six-month Treasury bill currently pays about 8% interest annually. Ask how the promoter can afford to offer such an unbelievably high return on your money. One Orange County company currently under investigation is offering investors 17% interest a month.
- Ask for brochures and written material about the investment opportunity. Bring it all to an accountant or attorney for review. Their fees will be a bargain compared with any potential losses. Have any contracts, including the fine print, reviewed by your attorney before signing them.
- Visit the clerk’s office at the county courthouse. Check if any civil or criminal cases are pending against anyone offering an investment opportunity. Call the police or sheriff’s fraud unit for information. Most popular investment programs are well publicized through word-of-mouth and investigators pick up tips.
- Invest only as much as you are prepared to lose. Don’t invest your children’s college money, retirement nest egg, etc. in a potentially risky deal.
- Explore the tax consequences. The Internal Revenue Service is very aggressive in pursuing what the agency considers to be abusive tax shelters. A group of investors currently face $70 million in back taxes and penalties from a solar tax shelter program sold by an Irvine firm.
- Be wary of dealing with out-of-state companies. If the deal goes bad, you are here and they are there with your money. The regional administrator of the Securities and Exchange Commission suggests not dealing with any company that sends a courier to your home or office to pick up a check. These people generally go straight to your bank to cash the check before you have time to change your mind.
- The only absolutely safe way to buy precious metals such as gold or silver is to pay full price and take delivery. If you are buying metals on credit, determine if the company is a member of the National Futures Assn., a national self-regulatory group. Is the firm registered with the Commodity Futures Trading Commission? Registration assures some recourse if problems with the company arise.
- Find out if the company selling securities is a member of the National Assn. of Securities Dealers, a self-regulatory group based in Washington, D.C. Many fraudulent companies lie about these affiliations, so it is worth the effort to verify membership by calling or writing to the organization. Check with the California Department of Corporations in Los Angeles for information on any action pending against a company offering securities.
- Consider the “sleep factor.” Will you be able to sleep well after investing your money?
