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Do You Know Who You Are Investing With?

In a recent Investor Alert, the U.S. Securities and Exchange Commission warned, “In order to attract unsuspecting investors and gain their trust, fraudsters may boast about credentials they do not have.” Indeed, a key part of many securities fraud schemes is the operator’s ability to mislead investors about his or her expertise and track record. Savvy investors should never trust their money to anyone who cannot verify their credentials.

More Than Lying on a Resume

People sometimes exaggerate or tell a white lie on their resume to get a job interview. But when it comes to investing thousands (or even millions) of dollars with another person, there is no such thing as a simple exaggeration or white lie. Creating a false public image is often the first step in a securities fraud scheme. And it is important for investors to look out for the warning signs.

First, schemers may lie about their college education. They know people are impressed with degrees from prestigious colleges and universities. For example, in 2011 the SEC caught a Massachusetts man who falsely claimed to have undergraduate and graduate degrees from Harvard. This was just one of a series of lies covering up the man’s non-existent hedge fund. So while it may seem innocent enough to lie about one’s college education, it is usually the first sign of a much deeper problem.

Second, schemers frequently invent or inflate professional credentials. Some people may falsely claim to have certifications from legitimate agencies. Others simply make up titles from real-sounding but fake organizations to offer the appearance of legitimacy. And sometimes they claim to have won non-existent awards. For instance, the SEC recently settled civil charges against a Pennsylvania man who inflated his credentials by, among other things, claiming he was named a “Top 25 Rising Business Star” by Fortune Magazine. Although Fortune is a real publication, the award was fake.

Finally, schemers often inflate their actual professional accomplishments. This can take the form of lying about the person’s knowledge of a particular industry. Or the person may claim to have an established track record in the marketplace, when in fact they have none. In some cases the person may cite “profits” created by the scheme itself as evidence of a track record.

How to Protect Yourself

The most important thing you should do before investing with anyone is to check their background. There are a number of online tools that enable investor to seek out information about a person’s standing with federal and state regulators. One example is the BrokerCheck database published by the Financial Industry Regulatory Authority. BrokerCheck includes information about all registered securities brokers, including employment history, certifications, licenses and disciplinary actions.

If you discover any person has falsified or exaggerated their credentials, you should not invest with them under any circumstances. And if you have been misled by someone’s false credentials and need legal advice on how to proceed from an experienced Florida securities fraud attorney, contact Gregory Tendrich, P.A., in Boca Raton today.

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