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For the past couple of years, investment fraud has been the costliest type of scam reported to the FBI\u2019s Crime Complaint Center. The FBI generally defines investment fraud as schemes where criminals misrepresent themselves or lie to victims to gain control of assets that the perpetrators then mishandle or steal. This may not sound like something that could endanger your not-for-profit, yet\u00a0it\u00a0is.<\/p>\n
If you have an endowment or stash of operating reserves, a shady investment advisor could pose as a legitimate and experienced expert and trick you into handing it over. Here\u2019s how to avoid this type of scheme, as well as how to maintain your nonprofit\u2019s image as a responsible financial steward.<\/p>\n
Outsider risk<\/strong><\/p>\n One way investment fraud differs from occupational (employee) schemes is that its perpetrators usually are outside professionals: brokers, bankers, financial planners, investment advisors or even self-styled money experts. Sometimes these thieves are registered or licensed and have no previous criminal record. Increasingly, social media \u201cinfluencers\u201d perpetrate investment fraud schemes or sometimes unwittingly participate in them by spreading the word to their followers.<\/p>\n Of course, the amount of damage a dishonest staff member can do with occupational fraud is usually limited. For a crooked investment advisor who controls a nonprofit\u2019s endowment, the sky\u2019s the\u00a0limit.<\/p>\n Form 990 rules<\/strong><\/p>\n When investment fraud strikes, it can cause significant financial losses. But the harm it does to a nonprofit\u2019s reputation with donors and the public could be even worse.<\/p>\n Tax-exempt organizations are required to disclose on their Form\u00a0990 whether they\u2019ve experienced a loss of more than $250,000 or 5% of their total budget or assets to fraud. If so, they must describe the incident on Schedule\u00a0O. This data becomes public and is likely to be reported by charity watchdog groups and, depending on your nonprofit\u2019s profile, the\u00a0media.<\/p>\n Hire a trustworthy advisor<\/strong><\/p>\n So how can your organization help ensure it\u2019s hiring a trustworthy advisor? First, beware of unrealistic promises. Advisors who guarantee immediate results or promise a certain consistent annual return are either lying or incompetent. Legitimate advisors should discuss the risk of losses and ask questions about your organization\u2019s investment policy (or help you develop one), including the types of investments you want to\u00a0avoid.<\/p>\n Second, be wary of investment fund managers who don\u2019t submit to outside audits or report their results publicly. Instead, look for an advisor who\u2019s both transparent and accessible. For example, your board likely holds meetings after business hours and your investment advisor needs to be able to meet with them to discuss your portfolio\u2019s holdings and recent results.<\/p>\n Ask for referrals<\/strong><\/p>\n To find an individual who\u2019s not only honest but also a proficient investor, ask for referrals. Other nonprofits can be valuable sources because their advisors will have nonprofit experience. Also contact your CPA, attorney or other trusted advisors for referrals. Once you have a couple of names, research them and ask your board to review and select one. Even after you\u2019ve engaged an investment advisor, your board needs to closely monitor the professional\u2019s decisions and the account. Contact us for suggestions.<\/p>\n \u00a9 2025<\/em><\/p>\n <\/body> For the past couple of years, investment fraud has been the costliest type of scam reported to the FBI\u2019s Crime Complaint Center. The FBI generally defines investment fraud as schemes where criminals misrepresent themselves or lie to victims to gain control of assets that the perpetrators then mishandle or steal. This may not sound like […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,15],"tags":[8,11,12],"class_list":["post-17303","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-not-for-profit","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17303","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17303"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17303\/revisions"}],"predecessor-version":[{"id":17304,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17303\/revisions\/17304"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17303"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17303"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17303"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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