Credit cards and investments are a risky combination, according to a new investor alert from the Securities and Exchange Commission.

Advisors should be aware that the agency is urging investors to look for red flags of fraud before paying for investments with credit cards or wire transfers, according to the alert.

“Most licensed/registered investment firms do not allow customers to invest using credit cards,” the SEC said.

SEC investigators have uncovered a growing number of new scams where unlicensed individuals calling themselves advisors or brokers use various tricks to get investors to send them credit card information and even urge investors to use or open up a another credit card in order to make increase “investments” and avoid detection.

In one enforcement case the SEC brought earlier this year, the regulator charged owners and operators of several boiler-room call centers for defrauding investors out of tens of millions of dollars.

The call centers’ employees allegedly required investors to submit photos of their credit cards, drivers’ licenses, and a utility bill, the SEC’s complaint alleged.

The so-called “brokers” and “financial advisors” actually used “Know Your Customer Rules” to justify requiring the documents. The SEC alleged that scam artists actually wanted these documents to dispute any allegations of unauthorized credit card charges that arose.

“Fraudsters may also try to get you to apply for additional credit so they can make more money off of you,” the agency warned.

“They may also suggest splitting your investment between more than one credit card to avoid a large charge from being flagged as suspicious by credit card companies. Finally, remember that there is no such thing as guaranteed high returns in a short period of time – this is a classic sign of fraud,” the SEC said.

The agency warned investors that “if you are still considering paying for an investment by credit card be wary if you are:

• Encouraged to open a new credit card or to increase the credit limit on an existing credit card account;
• Asked to split your payment between multiple credit cards; or
• Told you will make enough money in the next 30 days to pay your credit card bill.

Any suggestion from a so-called broker that an investor use a wire transfer to make an investment should raise just as many red flags, the SEC said. 

Offshore addresses are also a huge gamble for investors.“If you wire money outside of the U.S. for an investment that turns out to be a scam, you likely will never see your money again,” the agency warned.

According to the SEC, anytime an investor is asked to pay for an investment by wire transfer – whether foreign or domestic, he or she should be suspicious if:

• The wire is being sent to a person;
• The address is suspicious (e.g., it is a mailbox or virtual address); or
• You are told to note that the payment is for a purpose unrelated to the investment (e.g., medical expenses or a loan to a family member).

In another recent enforcement case (SEC v. Senderov and Babazara), the SEC took action against a fraudulent multi-million dollar scheme that used boiler-room-like call centers to solicit investors to pay for the investments by bank wire to third-party companies or credit cards. 

“Fraudsters may ask you to note that your payment is for something other than an investment in order to keep the bank from detecting their scam,” the regulator warned.

Investors can save themselves from working with unregistered firms and advisors, by checking out bona fides at https://www.adviserinfo.sec.gov/IAPD/Default.aspx  and brokercheck.com.

“We urge investors to work only with a licensed or registered investment professional or firm and not attempt to use a credit card to fund investments,” the SEC said.