Today is Giving Tuesday, and if your inbox is anything like mine, it is full of donation requests. I encourage you to support the causes that are near and dear to you.
But there also may be others asking for your money — in the role of “investor” rather than “donor”.
You may be approached, even by a broker you know, to take advantage of an unregistered security offering (these would be exempted under Rule 504, 505 or 506 of the federal Securities Act and state counterparts).
Some of these investments can be offered only to accredited investors who have earned at least $200,000 in income in each of the last two years ($300,000 for a married couple) or who have at least $1 million in net worth, excluding their personal residence.
Some of these opportunities can be offered to everyone.
Some of these investments can be offered via general advertisements, even via social media or other internet sites.
Some of these investments do not have any required disclosures from the offeror that would help an investor evaluate the deal. There is no governmental body to help protect the investor from fraud or scams.
With some limited exceptions, anyone who offers individualized investment advice or sells or promotes an investment in North Carolina, must be registered with the NC Securities Division. You can tell in five minutes if your broker is properly registered by calling (800) 688-4507.
In addition, the Securities Division provides some tips to help evaluate whether or not your investment opportunity is a scam:
-
Be sure to check with your securities regulator before investing in an unregistered product. Many of these schemes, especially high-yield investment programs (HYIP), are scams.
-
If the product involves international operations, it may be very hard, if not impossible, to get your money back.
-
Do not blindly trust an investment just because your friends or family are involved or if it relates to your religious affiliation.
-
Ask questions about how the returns will be made and who the company officers are. If these questions cannot be answered to your satisfaction, then do not invest.
-
Do not trust the investment just because you receive early returns. Remember that is how they rope you in and get you to recruit your friends.
-
Be wary of the “get in early and get out fast” recommendation. Many HYIPs advertise that one way to make profits fast is to invest early then get out early, but you never really know when the scheme is going to stop.
In addition, here are some questions to consider before deciding a particular unregistered investment is right for you:
-
What do the financial statements, if provided, tell you about the business?
-
Are the claims and expectations reasonable?
-
How reasonable is the issuer’s reliance on a particular technology, customer, product or natural resources claim?
-
Who are the issuer’s competitors?
-
What is the experience and background of management?
-
How long has the issuer been in business and has the issuer conducted prior offerings?
-
How does the issuer plan to use the money raised?
-
If the securities you are investing in have transfer restrictions, when will and how may the restrictions be lifted?
-
Because you may not be able to resell your investment easily, are you comfortable holding it indefinitely?
