SEC Alerts Investors to Rising Number of Investment Scams

The SEC Office of Investor Education and Advocacy ("OIEA") warned of an uptick in investment scam-related tips, complaints and referrals and cautioned investors "to protect themselves and others from becoming victims of investment fraud." In its alert, OIEA offered guidance on how to identify and avoid (i) Ponzi schemes, (ii) fake certificate of deposit ("CD") scams, (iii) fraudulent stock promotions and (iv) community-based financial scams.

OIEA warned investors to be aware of the following:

• Ponzi Schemes. OIEA stated that the hallmarks of a Ponzi scheme include (i) guarantees of high investment returns, (ii) unlicensed or unregistered sellers and (iii) returns that are overly consistent, as investment values typically fluctuate over time.

• Fake CDs. OIEA recommended that investors look out for claims, on websites selling CDs, that (i) offer high interest rates without penalties for early withdrawals, (ii) promote no other financial products, (iii) direct investors to transfer funds abroad or to an account with a name that does not match that of the listed financial institution, and (iv) list "clearing partners" that are supposedly SEC-registered.

• Stock Promotions Involving COVID-19 Claims. OIEA cautioned investors about stock promotions that claim publicly traded companies are positioned to profit from the COVID-19 pandemic as a result of the development of products or services that can "prevent, detect, or cure COVID-19."

• Community-Based Financial Scams. OIEA encouraged investors to be on the lookout for community-based financial schemes, as fraudsters sometimes target the members of identifiable groups, such as individuals of a common ethnicity, nationality, religion, sexual orientation and age, and exploit the trust and friendship within such communities.