FINRA issued a report Thursday, finding that 80 percent of respondents to its Financial Fraud and Fraud Susceptibility in the United States survey have been solicited to participate in or otherwise exposed to potentially fraudulent schemes; the report also stated that over 40 percent of survey respondents could not identify various classic red flags of fraud.
Fraud can come in the form of an e-mail earmarked for the spam folder at best (the most common form of fraud solicitation according to the survey) or a devastating crime at its worst.
The FINRA Foundation determined that financial fraud solicitations are commonplace and that Americans 65 years or older are particularly vulnerable for a myriad of reasons, not the least of which is this demographic's increased average inability to spot fraudulent sales pitches—and when the fraud is recognized as "odd," do something about it.
The survey found that over 40 percent of respondents did not identify a 110 percent annual return for an investment as a red flag, while 43 percent failed to identify "fully guaranteed" investments as a red flag. A majority of investors found that an investment pitch which guaranteed the safety of principal was appealing.
In reality, annual returns over 100 percent are "highly improbable" while nearly no investment is without risk; such inflated returns and guarantees are classic red flags and common pitches of the modern fraudster.
The enemies of fraud are knowledge and a proactive investor.
The survey determined that seniors and the elderly were 34 percent more likely to lose money upon being solicited for fraud than investors in their forties, in part because the oldest group surveyed indicated the greatest risk-aversion, fears assuaged by the red flag of guarantee—a likely false promise.
More telling, FINRA demonstrated that under-reporting is of significant concern: While 11 percent of survey respondents lost money in a likely fraudulent scheme or activity, just 4 percent admitted to being a victim of fraud when asked directly.
According to FINRA, the under-reporting rate for fraud exceeds 60 percent.
Among the reasons cited for this under-reporting phenomena were investors not knowing where to report fraud, believing that reporting it would not have made a difference or were simply too embarrassed to report it.
It takes a courageous investor to take a stand against fraudulent conduct by observing the signs and being consistent in holding fraudsters accountable.
If you have received a solicitation from a broker, firm or other financial professional that has contained a red flag for fraud or you suspect that you have been targeted in a fraudulent scheme that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.