Press Room

Avoiding investment scams

Money Management

Monthly financial advice
from the MACPA

For release: July 2009

With the stock market in turmoil in recent months and numerous other investments losing their appeal, many people are looking for ways to earn back the funds they’ve lost on stocks or to get some positive returns on the money they have left. Unfortunately, there are many con artists out there trying to take advantage of people eager to offset their market losses.

The Maryland Association of CPAs offers tips on how to avoid being scammed.

Is it too good to be true?

This is always the first question to ask when spending your money. If an investment or business opportunity promises “guaranteed,” rapid or unusually high returns, examine the investment materials carefully to determine how these assurances can be possible.

Keep in mind that high yield securities also carry high risks, including the possibility that you could lose your entire investment. And remember that just because a company has a nice office, attractive brochures and an appealing Web site, does not mean that it is poised for success -- or that it’s even a legitimate business.

The more questions you ask, the more likely you are to discern if the promises are real or if they are whitewashing the risks involved. Here are some of the best questions to ask.

Is this company registered?

When a company registers its securities with a government regulator, it is required to publish an annual report and a prospectus with details of its financial situation. It is possible to sell securities without registering, but this should be another red flag to potential investors. It may mean the company is trying to avoid regulation -- and the kind of disclosure that regulation requires -- because it has something to hide.

Ask for an investment prospectus and annual report and review them with an objective adviser. If these documents aren’t available, it’s probably best to walk away from the investment.

Does the investment have a track record?

Some scammers will offer you the chance to get in on the ground floor of a new opportunity. This may sound tempting, but it’s best to invest in a business that has a proven history of financial success.

Ask, too, if the people involved in the investment have any experience in this field. What is their previous success in this business? What documentation is available to demonstrate their track record?

Why do i have to invest immediately?

Con artists often insist that you must send in your money right away because only a few shares of a company are left. This should be a red flag to turn down the opportunity. The cons are only trying to prevent you from asking questions they can’t answer.

Is all my money being used to buy securities?

High-pressure salespeople often operate the way they do because they are expecting to get big commissions from the sales they make. Those commissions are deducted from your money.

Before you invest, find out if there are fees or costs involved and ask how much of your total outlay will actually be used to make an investment. Of course, legitimate stock brokers do charge transaction fees, but it’s always important to ask what they are in advance so you know what amount will be invested.

Turn to your CPA

Your local CPA can offer you independent, objective advice on all your important financial decisions. Consult him or her with any money questions that you or your family face.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.

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