Isolated? Don’t Make Snap Investment Decisions

Making decisions to trade or invest by yourself, especially if you are socially isolated, could make you more susceptible to fraud, research shows. If you’re solicited to buy or trade assets such as gold, silver, or digital assets, taking a little time to talk the idea over with someone you know and trust could save you significant losses down the road.

A 2019 joint study by the FINRA Investor Education Foundation, Better Business Bureau, and Stanford Center for Longevity found that respondents targeted by fraud were more likely to lose money if they did not have anyone with whom they could discuss the offers. In addition, those who engaged with the fraudsters “expressed significantly higher feelings of loneliness.”

According to previously unreleased data, the study’s authors said, nearly twice as many victims (41 percent) agreed with the statement “I didn’t have anyone to discuss (the solicitation) with” as non-victims (24 percent). Widowed (47 percent) and divorced (40 percent) respondents were more likely to agree with the statement as those who had never been married (25 percent).

These conclusions are important to keep in mind. Having someone they trust available to discuss financial decisions could help socially isolated people, including older adults who live alone, or those facing increasing financial strain, avoid losing money to fraud.

Stages of Victimization

To understand the study’s results better, it helps to know that fraud victimization typically passes through four stages:

  • Exposure. This is simply being in the marketplace. The more you expose yourself—by participating in chats or groups, researching opportunities, commenting on videos, signing up for email newsletters, responding to invitations for free brochures or books, etc.—the more likely you are to become a potential fraud target.
  • Targeting. Fraudsters will size up possible targets to identify the most lucrative marks. They will look at your social media profiles, look up where you live, see what you do for a living, or use sales calls to determine how much you know about the markets or assets they are pitching.
  • Engagement. This is when targets respond positively to the scheme—once they start asking questions or show interest, but before they give over any money or payment information.
  • Victimization. This occurs when money is lost. It could be a one-time payment, or happen over several months or years, depending on the fraud. Commonly, schemes will ask for small amounts of money at first, then make more and bigger requests over time.

The good news is that not all exposures lead to targeting, not all targets engage, and not all engagements lead to victimization. However, in times of economic uncertainty, fraud attempts tend to increase.

Preying on Desperation and Hope

Fraudsters prey on desperation and other vulnerabilities of their targets. A 2013 study by the Federal Trade Commission shows that victimization increases with negative life events, such as illness, death of a family member, and increasing debt. Those who experienced a serious life event were more than 2.5 times more likely to experience fraud than those who did not experience a serious life event. In addition, those who said they had more debt than they could handle were “significantly more likely to have been victims” of fraud than those who had lesser amounts of debt. A 2014 AARP study replicated the results.  In the AARP study, more victims reported they had as much debt or more debt than they could handle (69 percent) compared to non-victims (57 percent).

According to the FINRA Foundation joint study, frauds that started on social media and on websites led to the greatest percentage of engagements and victimizations. However, cold calls and email initiated the most fraud attempts. More than 1,400 Americans and Canadians who reported frauds participated in the FINRA Foundation joint study. Of those, 553 said the frauds they reported started with phone calls, followed by email (340), websites (123), social media (70) and postal mail (58).

Many of the suspicious posts and emails the CFTC found offered the promise of easy work-from-home money through trading or mining cryptocurrency, trading forex or binary options, and using automated trading bots or trading signals. Keep in mind there is no such thing as guaranteed, risk-free trading, and past results do not indicate future success. Often these promises fail to live up to the hype and may lead victims into advance-fee frauds, Ponzi or pyramid schemes.

Spam emails selling gold and silver that the CFTC was alerted to point to recent market volatility and forecast the collapse of the economy. They claim the only way to survive will be through bartering with gold and silver. But these same sellers also offer to store your gold in overseas vaults, sell you insurance, or try to convince you to put the money in an individual retirement account and entrust the gold to an IRA administrator. Many times, the only ones who make money on precious metals are the sellers who charge extremely high commissions and mark ups to the point where investors will never see a profit. Remember, gold and silver are just like other commodities—spot or cash market values will rise and fall over time.

Why Talking to Someone Else is Important

Fraudsters are experienced manipulators. They use major news events to add credibility to their scams and to pressure victims, often through fear or false urgency. Slowing down the sales pitch to consult a trusted family member or friend is an effective way to resist fraud.

There are a few reasons to consider talking to others before making an investment decision. First, other people can offer unique, unvarnished, perspectives about the financial decision. It’s very common for our own beliefs and biases to cloud our judgement. Getting a second opinion may raise questions or concerns that hadn’t originally been considered.

Second, talking through the opportunity and explaining one’s opinions may prompt deliberate consideration of pros, cons, and long-term implications of a plan or decision. This sort of rational thinking can sometimes melt away the halo of excitement and enthusiasm that comes with a sales pitch.

Third, one may learn something new that impacts decision-making. For example, a friend or adviser might have experience with the product or strategy that’s being considered, or know others who had bad experiences. He or she also may be able to point to alternatives or other information sources that would influence one’s thinking.

If You Are Socially Isolated

Pick your go-to person. Before you’re confronted with a tempting trading or investing offer, consider who you would turn to for a second opinion. Who do you trust? Who has experience with financial matters? Whose judgement do you value? It may be a professional, such as a financial adviser or attorney, or it could be a friend or relative.

Develop a checklist. If no one comes to mind, a good fallback would be to list safety measures to check and consider. For example, does the offer exhibit any of the common fraud tactics? Why are you getting this offer? Did you request the information? (Unsolicited offers may be fraudulent.) Is the seller registered with the CFTC or another regulator? Did you verify the registration and look at the individual’s work or complaint history?

Reach out to local organizations. You can also consider calling local or state consumer protection organizations like the BBB, or your state securities regulator or attorney general’s consumer protection office for information.

Just say ‘no’—then, hang up. If you regularly get cold calls from people asking you to invest money, develop a refusal script to get off the phone quickly. Something as simple as “Thank you but I do not respond to solicitations over the phone (hang up),” works just fine. Fraudsters are trained to keep you on the phone to gather information and wear you down. Don’t give them the opportunity.

Build up your resistance. Learn more about fraud and stay current on the latest schemes through credible entities such as state and federal government or law enforcement agencies, including the CFTC, SEC, Department of Justice, FTC, the Consumer Financial Protection Bureau, FINRA, National Futures Association (NFA), your state securities regulator or attorney general’s office.

If You Know Someone Who Is Socially Isolated

If someone you’re close to is socially isolated, share this information with him or her. Talking about money can sometimes be uncomfortable, but losing money to fraud could be much worse.

Check in regularly. Listen for possible warning signs, such as:

  • Talk about coming into money
  • A new online friend who’s offering an opportunity
  • Drastic changes in financial behavior
  • Being secretive about investments
  • Talk of foreign investments
  • Feeling pressured to come up with money

Stepping in may feel uncomfortable, but it can have dramatic results. About 20 percent of the respondents to the FINRA Foundation joint study said someone from an organization, company, or agency intervened while they were engaged with a scam. Of those who reported an intervention, 51 percent avoided losing money.

If you suspect that someone you know is engaged with a fraud, don’t put off having a conversation. Be sure they understand you are coming from a place of concern. The sooner you act, the less money they are likely to lose.

  • Be patient. Don’t be too aggressive. Some people may be embarrassed or uncomfortable, and may need a little time to open up.
  • Don’t judge or blame. Anyone can become a victim of investment fraud.
  • Be empathetic. Show them that you care and try to relate to their circumstance.
  • Don’t jump to conclusions. Ask questions and listen to the full answers. Don’t try to steer the conversation.
  • Keep trying. Every attempt at the conversation is valuable.
  • Report the fraud. If you know of a violation, or witness suspicious activity, submit a tip to the CFTC or the FBI's Internet Crime Complaint Center.

This article was prepared by the Commodity Futures Trading Commission’s Office of Customer Education and Outreach. It is provided for general informational purposes only and does not provide legal or investment advice to any individual or entity. Please consult with your own legal adviser before taking any action based on this information. Reference in this article to any organizations or the use of any organization, trade, firm, or corporation name is for informational purposes only and does not constitute endorsement, recommendation, or favoring by the CFTC.