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Investment Fraud Where You Least Expect It

Investment fraud schemes can come from places you least expect. According to a release from Financial Industry Regulatory Authority (FINRA), Ruth and Len Mitchell were defrauded by their neighbor and friend. They were unaware that he was running an $11 million Ponzi scheme. The Mitchells placed their trust in this man, let him keep their books and even had him do their personal taxes. The Mitchells knew that their neighbor ran an investment company, which is why they trusted his advice to invest $13k in real estate bonds. Unfortunately, a man who claimed to be their trusted friend turned out to be a man out for their money.

This is just one example of a larger problem. Far too often, fraudsters attempt to build personal relationships with people solely for the purpose of stealing their hard-earned money. According to the FINRA), this tactic is common enough to have been given a name: source credibility. This particular scheme also involves something called social consensus. Many of the Mitchells friends and others in the community were defrauded by this man. The idea that "everyone else was doing it" made it seem safe when it was not. Even when you feel secure in your investments, be discerning. Many investment fraud schemes begin with a false sense of security.

FINRA gives three steps that every investor should take to avoid this particular type of investment fraud:

  1. Question. Before investing your money, ask questions. Take advantage of the many avenues for checking both the investment and the seller. If the investment is not registered with the U.S. Securities and Exchange Commission (SEC) or the seller is not licensed, be sure to ask why.
  2. Don't invest on source credibility alone. If someone has come to you and is trying to get you to invest based on source credibility alone, then this could be a red flag. Of course, not all colleagues and friends are out for your money, but you should avoid investments made on rapport alone.
  3. Don't invest on social consensus alone. Like number two, avoid making investments based on social consensus or popularity alone. If a seller approaches you and their main selling point is that "everyone else is doing it," be sure to ask more questions.

Meyer Wilson is a team of investment fraud lawyers dedicated to recovering your money lost as the result of investment misconduct. Investment fraud schemes like this are unfortunate, but they do happen. If you lost a significant amount of money due to investment firm or financial advisor misconduct, then call us today.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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