The DC Department of Insurance, Securities and Banking (DISB) cautions residents to be on guard against investment adviser scams.
How Are The Scams Perpetrated?
Scam artists often use fraudulent and illegal practices to deceive investors into investing money in schemes that are not legitimate. Fraudulent investment advisers use misrepresentation and omission, unsuitable investments, churning, and Ponzi scheme tactics, which can result in significant money loss. Between July 2022 and July 2023, 24 District residents were affected by investment adviser scams that represent $565,000 in losses.
To scam investors, fraudsters may:
- Mislead an investment client by making investment recommendations without being licensed or by providing false or incomplete information about an investment's risks, returns, or fees.
- Recommend an investment unsuitable to the client’s financial situation, goals, or risk tolerance. They may recommend a high-risk investment to a client who has a low-risk tolerance.
- Excessively trade securities in a client's account. They may recommend trades that are not in the investor’s best interest, which can lead to high fees that diminish the client's investment returns.
- Use money from new investors to pay the returns promised to earlier investors. The scheme continues until the financial adviser cannot attract enough new investors to meet the returns promised to existing investors. At this point, the scheme collapses, and many investors lose their money.
Avoid Investment Adviser Scams
- Verify the financial adviser’s credentials and background at these websites: brokercheck.finra.org, adviserinfo.sec.gov, nasaa.org, naic.org, and cfp.net.
- When discussing investment ideas and strategies, ask about the advantages and disadvantages of each recommendation, and attempt to get a second opinion.
- Do not allow the financial adviser to make trades without first consulting you. Require every financial action to be cleared with you first.
If you believe you have been the victim of an investment adviser scam or other financial fraud, contact the DISB Enforcement and Consumer Protection Division at (202) 727- 8000. You may also file a report with the Federal Trade Commission (FTC) at reportfraud.ftc.gov or call the FTC Consumer Response Center at (877) 382- 4357.
The mission of the Department of Insurance, Securities, and Banking (DISB) is three-fold:
(1) cultivate a regulatory environment that protects consumers and attracts and retains financial services firms to the District; (2) empower and educate residents on financial matters; and (3) provide financing for District small businesses.