The possibility of investment fraud can be reduced with pre-investment due diligence. The best defense that investors have against fraud is research. Before making an investment, individuals should always conduct their own independent research rather than rely solely on a potential investment’s own information and references. Blogs, company news reports, and e-mails are not sufficient for making a decision. Individuals should ensure that they completely understand a company’s product or service before investing. If possible, would-be investors should also check financial statements through the SEC’s EDGAR system, which gives considerable information on many potential investments.
In general, people should remain especially critical of unsolicited offers and pitches, especially regarding foreign investments. These sorts of offers can point to quick moneymaking schemes. Independent financial information can help avoid making a bad investment in a fake company. Research should also extend to the salesperson. Even if investors know the person championing the investment personally, investors should ensure that salespeople have the proper licensure to sell securities and that they have not had repeated conflicts with regulators. Both the SEC and FINRA maintain online databases about the history of brokers and advisors. State securities regulators may have additional resources.