Investor Education: Recognizing Investment Fraud

Investors should understand that the promises of high returns on an investment equivocates high risk. It is important to investigate these instances before investing any money. First, research whether the person offering the investment is licensed and check to see if the investment offering is registered. Make sure the person soliciting for an investment has delivered a written prospectus (a summarization of the investment in clear, understandable language) and DO NOT INVEST if there is any hesitation that the investment is legitimate. Contact the Securities Division for assistance at 702-486-2440.

Anyone can be a victim of investment fraud, as shown in this video from FINRA:

The video was produced by the FINRA Investor Education Foundation. Find more information at

Common Fraudulent Activities:

  • Unregistered Fraudulent Activity – This type of activity occurs when a person, security, or investment offered and/or sold is NOT registered with the Division and the investor/potential investor has not been informed of this important fact.
  • Market Manipulation / "Pump and Dump" Scams – These scams are short and quick manipulations of the price of a stock. Generally, the perpetrator will purchase thinly-traded, penny/low priced speculative stock and then transmit a misleading, optimistic message promoting the stock which causes investors to purchase, and drive up the price of that stock. Typically, the individual offering the stock does not disclose the ownership interest that they have in the stock prior to distributing the false message and, as the stock price rises in reaction to the misleading information, the scam artist sells the stock for a significant profit. The false messages are delivered via official-looking email, bulletin boards, or as part of an investment advice web page.
  • Unregistered Securities Offerings – Purported issuers of securities offer and/or sell securities online to investors without proper registration or exemption from Federal and State securities laws.
  • Scam Pre-IPO's – Company shares are offered directly to unsuspecting investors based on the premise that the company will be going public in the very near future. This exploitation plays on an investor's eagerness to partake in what could be a lucrative Initial Public Offering but, these companies either do not exist or are marginally successful and are not financially ready to "go public".
  • Scam Private Placements – Shares of a company are offered online with a promise of great returns and are accompanied by promotional materials. The company turns out to be nonexistent and the issuer has usually left town or taken the money for personal gain.
  • Prime Bank Schemes – Prime Bank Schemes involve claims that money can be deposited with European banks or financial institutions in the U.S. and used to facilitate financial transactions around the world. Generally, investors are told they will receive a high-yield, tax-free returns through trading by the international elite, or "prime" banks; a so-called program that is usually available to only the wealthy, but because there is a shortage in this particular program, it is being offered to new investors for a smaller minimum investment. High-pressure sales techniques induce the investor to make a quick decision to invest in these non-existent prime banks which use money from investors to facilitate transactions.
  • Promissory Notes or Guarantees – Notes and guarantees are commonly offered as collateral. In reality, a note is just a person's promise to pay and provides no protection against companies in poor financial condition. Investors must research if the company is in good financial standing and wonder why they are borrowing money from individuals? What collateral will be put in the lender's name to ensure the note is repaid? When promissory notes or guarantees are given to investors in return for an investment of money, the notes are securities and the sellers must comply with securities laws.

Common Fraud Warning Signs:

  • Promises of high returns
  • Claims the investment is guaranteed
  • Pressure to invest immediately (a deadline)
  • Encouragement to borrow money against a home
  • Vague descriptions on how the money will be used
  • Name-dropping of well known people in the community who have allegedly approved the investment
  • Assertion that the investment involved "new" technology
  • The investment is a cure-all drug or high-tech revolutionary invention

When in doubt, contact the Securities Division for assistance at 702-486-2440.