SEC Chairman Lists Red Flags for Investors

If you think you’re going to miss the money train on Wall Street, Securities and Exchange Commission Chairman John S. R. Shad has some advice:

Look out for the red warning flags. Don’t be stampeded into plunking down cash too fast.

With those words of warning, Shad has released his new “Ten SEC Red Flags and Guidelines for Investors.”

“Unusually broad and active securities markets,” like those of the last two weeks, do not necessarily breed fraud “but investors should be skeptical about get-rich-quick schemes--whatever the level of the Dow Jones average,” Shad said Friday.

“The vast majority of securities professionals are honest,” he said. “But the first line of defense against securities fraud is a skeptical investor. Investigate before you invest.”

Here are the SEC’s 10 red flags for investors:

- Reject high-pressure solicitations. Take time to think it over before you commit to invest.

- Be very skeptical of promises of exceptionally high returns. Generally, the higher the return, the greater the risk of loss. If something sounds too good to be true, it probably isn’t true.

- Before you invest, read the prospectus and check reports of other materials that describe the investment. Ask about whatever you do not understand and get a clear explanation.

- Don’t invest if you do not understand the risks of loss.

- Be aware that very low-priced stocks often involve high risks of loss.

- Don’t put more money into high-risk investments than you can afford to lose.

- Don’t tie up money that you may need to spend in illiquid investments.

- Keep informed as to how your investments are doing.

- Make sure you receive written confirmations and statements, as well as explanations, of anything you do not understand.

- If you believe you have been cheated, provide the facts in writing to your local Better Business Bureau, any registered stock exchange, the National Assn. of Securities Dealers, state securities regulator or the nearest SEC office.