Protecting your finances is often a matter of what you do before you invest in anything. Avoiding financial fraud is nearly always about what you allow to happen before money ever exchanges hands.
I’m a big fan of true-crime reality shows. These include in-love-today-murdered-tomorrow shows like Fatal Attraction and Snapped, as well as financial crime series such as CNBC’s American Greed. The latter focuses largely on investment scams, including affinity fraud, relationship scams and other schemes designed to con people out of their money. Many times the victims are people of modest means, education, and financial sophistication. But more often than you might think, the victims are people you’d think would know better. Famous athletes and entertainers, prominent public figures, religious leaders and even wealthy entrepreneurs are not immune to being conned, often out of millions of dollars.
However, regardless of the particular type of scam, or the demographic of its victims, they all have one thing in common: Their finances, reputations, and peace of mind could have been protected by just asking a few questions, and independently verifying the answers, before they invested.
Investment scammers count on being able to control the story. To succeed, they must have the last word on what information you receive, and whom you choose to trust (them) or distrust (your friends, family, advisers, regulators, legal authorities, etc.). Nothing repels scam artists like you asking the right questions and getting the answers from people other than them or partners colluding with them. Here are five questions to ask before you invest in anything.
What is the name of your banker, so I can verify your statements?
May I have your brokers/business license number?
What state/federal agencies are you registered with?
Do you mind if I call the state banking commission/department?
Do you mind if I review this opportunity with my banker/attorney/financial adviser?
If a person is legit, she will immediately provide the information you seek. She will allow you to thoroughly and independently vet her credentials and history. She will also allow you plenty of time to investigate the proposed investment opportunity before you invest. However, back away and hold on tightly to your money if:
She refuses to answer. She may even act hurt, angry or offended that you would even ask, in order to discourage you from pressing the issue. She will likely also insist that the authorities need to be kept in the dark about this opportunity and/or are not to be trusted. Finally, she may try to convince you that involving others may hurt your reputation, undermine your relationships, cost you financially and even put you in physical danger.
He lies or provides false, misleading, or outdated information. Again, don’t just take his word for it. Verify everything independently with the proper authorities before you invest anything.
She distracts and delays with excuses. In the meantime, she may pressure you to move forward as an act of good faith, stressing how foolish or stupid you’ll feel if you let the opportunity slip by. Refuse to provide even a token investment.
If they do any of these three things, refuse to do business with them–forever–no matter who they are. At best, they are unqualified, unreliable, and unprofessional; at worst, they are cold-hearted criminals. Never forget that con artists come in every form you can imagine, from church deacon or three-piece-suited M.B.A., to sorority sister or hottest babe at the club. They can even be (and often are) a long-time co-worker, romantic interest, a college classmate, neighbor, or family member.
Scammers succeed by identifying your biggest desires, obsessions, goals, fears and needs. These may not be about money at all, and can range from fear of being alone, to a need to feel closer to God. A con artist will then focus on convincing you that she is the perfect person to get you what you desperately desire or protect you from what you don’t want. That means, to protect yourself, you must control your emotional responses, as well as access to your finances.
To further educate and protect yourself against investment fraud and financial scams, check out the following resources:
U.S. Securities and Exchange Commission (SEC)
Financial Industry Regulatory Authority (FINRA)
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.