Fake Seals and Phony Numbers:
How Fraudsters Try to Look Legit
It's a hard, cold fact: fraudsters lie. That's how they attempt to make
money. They lie when they promise you "guaranteed" high returns with little or
no risk. And they lie when they forget to mention that the company or product
they're touting doesn't exist.
Some fraudsters tell straightforward lies, fabricating facts or making bogus
claims. That's why we encourage investors to do their own independent research
and to remember that wonderful, timeless adage: "If it sounds too good to be
true, it probably is." Other fraudsters salt their stories with grains of truth
to give their schemes an air of legitimacy. For many years, the SEC and
securities regulators around the globe have been encouraging investors to
investigate before they invest — to ask tough questions about their investments
and the people who sell them. Taking their cue from us, some fraudsters now
pretend to do the same.
One ruse fraudsters use involves assurances that an investment has been
registered with the appropriate agency. The fraudsters will purport to give you
the agency's telephone number and invite you to verify for yourself the
"authenticity" of their claims. But even if the agency does exist, the contact
information almost certainly will be false. Instead of speaking with an actual
government official, you'll reach the fraudsters or their colleagues — who will
give the company, the promoter, or the transaction high marks.
Another trick involves the misuse of a regulator's seal. The fraudsters copy
the official seal or logo from the regulator's website — or create a bogus seal
for a fictitious entity — and then use that seal on documents or web pages to
make the deal look legitimate. You should be aware that the SEC — like other
state and federal regulators in the U.S. and around the world — does not allow
private entities to use its seal. Moreover, the SEC does not "approve" or
"endorse" any particular securities, issuers, products, services, professional
credentials, firms, or individuals.
Here's how you can protect yourself against these and other deceptive
tactics:
Deal Only With Real Regulators
— It's not hard to figure out who the real regulators are and how you can
contact them. You'll find a list of international securities regulators on
the website of the
International
Organization of Securities Commissions (IOSCO) and a directory of state
and provincial regulators in Canada, Mexico, and the U.S. on the website of
the North
American Securities Administrators Association (NASAA). If someone
encourages you to verify information about a deal with an entity that
doesn't appear on these lists — such as the "Federal Regulatory & Compliance
Department," the "Securities and Registration Compliance" agency, or the
"U.S. Securities Registration Bureau" — you're probably dealing with
fraudsters. You'll find legitimate contact information for the SEC in the Contact Us section of our
website and on SEC Division
Homepages. If you're ever unsure whether you're dealing with someone
from the real SEC, use our online
Question Form to ask
us.
Be Skeptical of Government "Approval" —
The SEC does not evaluate the merits of any securities offering, nor do we
determine whether a particular security is a "good" investment. Instead, the
SEC's staff reviews registration statements for securities offerings and
declares those statements "effective" if the companies appear to have
satisfied our disclosure rules. In general, all securities offered in the
U.S. must be registered with the SEC or must qualify for an exemption from
the registration requirements. You can check to see whether a company has
registered its securities with the SEC and download its disclosure documents
using our EDGAR database of
company filings.
Look Past Fancy Seals and Impressive
Letterheads — Most people who use computers know how easy it can be to
copy and paste images. As a result, today's technology allows fraudsters to
create impressive, legitimate-looking websites and stationery at little to
no cost. Don't be taken in by a glossy brochure, a glitzy website, or the
presence of a regulator's official seal on a web page or document. Again,
the SEC does not authorize private companies to use our seal — even as a
legitimate link to our website. If you see the SEC seal on a company's
website or materials, think twice.
Check Out the Broker and the Firm —
Always verify whether any broker offering to buy or sell securities is
properly licensed to do business in your state, province, or country. If the
person claims to work with a U.S. brokerage firm, call NASD's Public
Disclosure Program hotline at (800) 289-9999 or
visit NASD's website to check out the background of both the individual
broker and the firm. Be sure to confirm whether the firm actually exists and
is current in its registration, and ask whether the broker or the firm has a
history of complaints. You can often get even more information from your
state securities regulator.
Be Wary of "Advance Fee" or "Recovery Room"
Schemes — An increasing number of investment-related frauds target
investors worldwide who purchase "microcap" stocks, the low-priced and
thinly traded stocks issued by the smallest of U.S. companies. If the stock
price falls or the company goes out of business, the fraudsters swoop in,
falsely claiming that they can help investors recover their losses — for a
substantial fee disguised as some type of tax, deposit, or refundable
insurance bond. As soon as an unwary investor pays the "advance fees," the
fraudsters disappear — leaving the investor with even higher losses. For
more information about these types of frauds, please read our publication
entitled The
Fleecing of Foreign Investors.
If you want to invest wisely and steer clear of frauds, you must
get the facts. Never, ever, make an investment based solely on a
promoter's promises or what you see on the Internet — especially if
the investment involves a small, thinly-traded company that isn't
well known. And don't even think about investing on your own in
small companies that don't file regular reports with the SEC, unless
you are willing to investigate each company thoroughly and to check
the truth of every statement about the company.