How to Avoid a Costly “Free” Lunch

             It sounds good. Come enjoy a free lunch at a fab restaurant while you hear about how to save for retirement or otherwise set yourself on the path to riches. Trouble is some of those “free” lunches can be costly.

            Falling victim to a fraudulent investment scheme can mean losing anywhere from a few hundred dollars to your life savings. While it may seem harmless to sit through an investment seminar, know who you’re dining with. Check out the company first, rather than run the risk of falling for a financial siren song over a freebie.

            For sure there are plenty of financial seminars over lunch or dinner that are real opportunities. But that said, here’s what you need to know to avoid getting taken to the cleaners while you munch.

             The most expensive lunch you ever had

             Investment scams and schemes can come in many forms and a common technique to lure people in is the offer of a free financial seminar over lunch, according to the Better Business Bureau. In one recent example, the Securities and Exchange Commission shut down a Ponzi scheme which stole $20 million from retirees in California and Illinois. The scammers invited senior citizens to estate planning seminars and later coaxed their victims into buying promissory notes for purported Turkish investments.

            “Free lunch seminars can seem like an easy way to get a meal, but attendees run the risk of getting drawn in by the slick presentations and promises of big returns,” says Alison Southwick, BBB spokesperson in a prepared statement. “Unscrupulous seminars often use the promise of a free lunch to lure in leisurely senior citizens who have time and exploitable retirement accounts and real estate.”

             Have your guard up

             Don’t just mindlessly enjoy your food. Pay attention and listen up for tell-tell clues that maybe all is not legit.

            Pressure, pressure and more pressure. High pressure sales tactics are the hallmark of a fraud, says Andrew Stoltmann, of the Stoltmann Law Office. “If the peddler is trying to get the client to sign something or buy something on the spot, run for the hills,” he adds. Typically, with legitimate investments, the opportunity wills till be there six months down the road.

            Consider what’s being sold. You should be worried if the investment being sold is a variable or equity indexed annuity, private placement or a viatical or other esoteric investment. These sorts of investments usually have very high commissions and fees and are favored by unscrupulous advisors, adds Stoltmann.

            Forget the cold callers. Receiving a cold call or unsolicited mailer should raise a red flag. Legitimate financial advisors don’t need to go trolling for new clients through the phone book, says Stoltmann.

            Promises, promises. If the advisor or investment company guarantees high returns and no losses, think again. If the performance claims are very inconsistent with market performance, you have to ask yourself why? Or, your gut tells you it sounds too good to be true, it usually is, warns Eleanor Blayney, the consumer advocate for the Certified Financial Planning Board.

              Listen for the hype.  Furthermore, if the advisor boasts of unsubstantiated earnings that he and his clients have made, look out. Regardless of statements on how well an individual is doing after purchasing a product or service, do your own homework. Speakers may provide misleading information on the risks or performance of a product, she adds. Be wary too of,  “offers to hear from a handful of existing investors who have enjoyed remarkable returns,” says Steve Lee, a fraud detective and managing partner of Steve Lee and Associates. Another sign that you should not ignore, “If they say the investment is based on inside or confidential information, contacts or systems,” warns Peter Davidson, a partner at the law firm of Ervin Cohen & Jessup.

             Requests for a large up-front investment. Untrustworthy schemers might try to convince you to pay a lot of money upfront so they can get out of town with a large haul, rather than wait for the funds to trickle in, cautions the BBB.

             The glamour guise.  If at the luncheon you sign up for a follow up visit and the broker/sponsor wines and dines you in an unusually expensive restaurant or hotel, or has an ornate office without the trappings of a lot of operations, get suspicious. “Broker-dealers, investment funds, and the like tend to have heavy, unglamorous operations and there should be a back office that looks like someone is actually doing work,” says Stephen Furnari, a corporate attorney with Furnari Scher. Many con artists also will try to give their scheme an air of sophistication by relying on overseas investments such as foreign currency, property, stocks and bonds. They might also claim, incorrectly, that you can avoid taxes by investing overseas.

             Most definitely, says Blayney, “If you don’t understand the investment, it’s a good sign to stay away.”