U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

How To Avoid Problems

Choosing someone to help you with your investments is one of the most important investment decisions you will ever make. While most investment professionals are honest and hardworking, you must watch out for those few unscrupulous individuals. They can make your life’s savings disappear in an instant.

Securities regulators and law enforcement officials can and do catch these criminals. But putting them in jail doesn’t always get your money back. Too often, the money is gone. The good news is you can avoid potential problems by protecting yourself.

Let’s say you’ve already met with several investment professionals based on recommendations from friends and others you trust, and you’ve found someone who clearly understands your investment objectives. Before you hire this person, you still have more homework.

Make sure the investment professional and her firm are registered with the SEC and licensed to do business in your state. And find out from your state’s securities regulator whether the investment professional or her firm have ever been disciplined, or whether they have any complaints against them. You’ll find contact information for securities regulators in the U.S. by visiting the website of the North American Securities Administrators Association (NASAA) or by calling (202) 737-0900. Our publication “Check out Brokers and Advisors” will show you how to research a financial professional.

You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments are registered. Keep in mind, however, the mere fact that a company has registered and files reports with the SEC doesn’t guarantee that the company will be a good investment.

Likewise, the fact that a company hasn’t registered and doesn’t file reports with the SEC doesn’t mean the company is a fraud. Still, you may be asking for serious losses if, for instance, you invest in a small, thinly traded company that isn’t widely known solely on the basis of what you may have read online. One simple phone call to your state regulator could prevent you from squandering your money on a scam. You can read more on this topic in our brochure, "Information Matters."

Be wary of promises of quick profits, offers to share “inside information,” and pressure to invest before you have an opportunity to investigate. These are all warning signs of fraud.

Ask your investment professional for written materials and prospectuses, and read them before you invest. If you have questions, now is the time to ask.

  • How will the investment make money?
  • How is this investment consistent with my investment goals?
  • What must happen for the investment to increase in value?
  • What are the risks?
  • Where can I get more information?


What If I Have a Problem?

Finally, it’s always a good idea to write down everything your investment professional tells you. Accurate notes will come in handy if ever there’s a problem. We have a form for taking notes during conversations with an investment professional.

Some investments make money. Others lose money. That’s natural, and that’s why you need a diversified portfolio to minimize your risk. But if you lose money because you’ve been cheated, that’s not natural, that’s a problem.

Sometimes all it takes is a simple phone call to your investment professional to resolve a problem. Maybe there was an honest mistake that can be corrected. If talking to the investment professional doesn’t resolve the problem, talk to the firm’s manager, and write a letter to confirm your conversation. If that doesn’t lead to a resolution, you may have to initiate private legal action. You may need to take action quickly because legal time limits for doing so vary. Your local bar association can provide referrals for attorneys who specialize in securities law. At the same time, call or write to us and let us know what the problem was. Investor complaints are very important to the SEC. You may think you’re the only one experiencing a problem, but typically, you’re not alone. Sometimes it takes only one investor’s complaint to trigger an investigation that exposes a bad broker or an illegal scheme. You can use our online complaint form to send us a complaint electronically. If you do not want to communicate electronically, either print and fill out a form or write us a letter. Our address is: SEC Complaint Center, 100 F Street NE, Washington, D.C. 20549-0213. You can also send a fax to 202-772-9295.

You're almost there! A few final thoughts before you continue 
your journey … 


Modified: 01/27/2006