Investment Fraud Prevention: What should a trader do now?
As Goldman Sachs and Paulson & Co. dominate the headlines with their alleged schemes to defraud investors, everyone should pause and ponder the lessons to be learned from this latest episode of “Deception 101”. The sale of mortgage-backed securities nearly brought down our entire global banking system, and although most of us will never see a “bid/ask” quote for a CDO, we are reminded once again that the Buyer must always beware. These contracts offered high returns, appealing to the greed within, and were accepted by Buyers at face value without so much as a cursory review of the small print.
In these tough economic times, we must be ever vigilant of a potential fraudster. Crooks are also having to live it lean and are getting more aggressive in their search for potential “marks”. Financial crime is on the rise, and for the criminally inclined, it represents a $19 billion dollar industry on an annual basis. As for the industry watchdogs that keep track of these statistics, they are quick to note that forex trading is not immune from these acts of deception. An official of the National Futures Association was recently quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically." As for the latest stats, about 26,000 people lost $460 million in forex frauds for the six years precceding 2008. We can only guess at what more recent figures might be.
So, what should a forex trader do now to protect himself? It is not necessary to take a refresher course in the latest risk management techniques. Fraud prevention can be as easy as the “3B’s”, your Bank, your Broker, and the Body in front of your PC (Yes, that means You!)
- Bank: It is time to do a quick credit check on the Bank that holds your settlement funds. The balance sheets of most all banks have taken a severe hit from the recent mortgage debacle. It would be prudent to check the FDIC website for a Call Report on your bank. If the report makes your gut turn in any way, then maybe it is time to switch. If you use an offshore bank, then you may be playing with fire. Attempts to press your legal rights in a foreign jurisdiction are all but impossible. Check with your brother-in-law, the attorney, and get his opinion if you are curious. Safety first is always wise rule to follow.
- Broker: Your Broker is your next line of defense. He should also be checked for his worthiness. There are many sites that offer unbiased reviews of forex brokers. Find one that has written about your broker. If you cannot find one, then that tells you something also. Check with your other trader friends, particularly the ones that you respect and trust. Networking is a valuable tool to discover information regarding other bad experiences.
- Body (You!): And lastly, that brings us to the firm of “Me, Myself and I”. The best way to prevent fraud is to stop it before it ever has a chance to happen, and only you have the power to do that. Forex scam artists have crafted extremely convincing promotional campaigns carefully designed to separate you from your hard-earned capital. Beware of those tempting email solicitations that promise six-figure incomes with little or no risk, and avoid high-pressure telemarketers that promise get-rich paths to wealth if only you wire funds today. Don’t be shy if one of these hucksters approaches you. Hang up and walk the other way!
The Internet has been the great enabler for many online industries in the past decade, but it has also been a breeding ground for sophisticated fraud schemes. The ability to look your business partner in the eye is totally lacking. However, with preparation, vigilance, and the “3 B’s”, you, too, can learn to mitigate investment fraud, just like the experts.