Questions to ask before investing: a 12-point checklist

Before investing, check six things: who is offering it and whether they're registered, what exactly the product is, where the returns come from, what risks and costs it carries, how you get your money back and who holds it. These twelve questions turn that into a checklist you can go through in ten minutes. Each one comes with the real case from the MATERIUM series it would have stopped: from Charles Ponzi in 1920 to FTX in 2022, the victims didn't ask them, or couldn't check the answer.

Print it with your browser's print option and go through it with someone you trust before you sign anything. If an answer is “I don't know” or “they told me so,” that question is still unanswered.

The 12 questions to ask before investing

About who is offering it

1. Is the firm on FINRA BrokerCheck, the SEC's adviser database or the FCA Register, with the same contact details I've been given? Look it up yourself with our guide on how to check if a broker is legit. The case it would have stopped: Allen Stanford sold from a bank in Antigua, out of reach of his clients' regulators.
2. Does it appear on the FCA Warning List or in a regulator's disciplinary records? It takes a minute on the FCA Warning List and in the disclosures section of BrokerCheck. Also search the names of the people in charge alongside “fine” or “fraud.” The case: the SEC fined Jordan Belfort in 1994 and barred him from the industry, but he kept calling the shots from outside; the brokers' regulator didn't expel Stratton Oakmont until December 1996. His clients could have read that record.
3. Did I go to them, or did they come to me? Calls, messages, ads and “opportunities” from acquaintances that you didn't ask for are the way into almost every fraud. The case: OneCoin spread across dozens of countries with commissions for recruiting: a relative or a friend offered it to you, and trust in them took the place of checking.

About the product

1. Can I explain in my own words where the profit comes from? If you don't understand it, don't buy it. The case: Theranos sold a “revolutionary” technology that nobody outside the company could examine. Its Law of Deception No. 15: “If you promise the future, nobody audits the present.”
2. Are the promised returns high and also safe? The two together don't exist. The case: Baldomera Larra promised 30% a month in 1876 Madrid, and Charles Ponzi, 50% in 45 days in 1920 Boston.
3. Do my earnings depend on other people joining? If you get paid for bringing people in, or the first ones are paid with the money of the next ones, it's a pyramid or a Ponzi scheme. The case: Sergei Mavrodi's MMM sold shares whose price he set himself and that only went up, until in July 1994 he cut it from 115,000 to 1,000 rubles.
4. Are the results always good, without a single bad month? Real markets go up and down. The case: Bernie Madoff sent out statements showing steady gains for decades. He didn't invest the money: he kept it in a bank account.

About the proof

1. Was the proof I'm being shown produced by the seller? Brochures, contracts, audits or certificates from the firm itself are no substitute for an independent source. The case: Gregor MacGregor printed a flag, a currency and a guidebook for Poyais, a country that didn't exist. And Lou Pearlman's “auditor” was a telephone answering service.
2. Are they winning me over with celebrities, luxury or “important people”? Someone else's fame is no guarantee for your money. The case: the Fyre Festival was sold with models and influencers, and today celebrity ads are faked with AI. We explain it in fake celebrity investment ads.

About your money

1. Can I withdraw my money whenever I want, without paying anything to do it? If they ask you for a fee, a tax or a “verification” to get it out, that's the final stage of the scam. The case: at FTX, customers suddenly discovered their money wasn't there, even though the terms of service said their assets belonged to them at all times.
2. Who holds my money, and whose name is on the account I'm paying into? Never a personal account, a crypto wallet someone sends you in a chat, or a firm in another country that you can't check. The case: the victims of Simon Leviev lent him money that ended up paying for the private jets he used to win over the next one.

About how you decide

1. Are they rushing me, or asking me not to tell anyone? Urgency and secrecy exist so that you don't check. Talk to someone you trust before you sign. The case: in 1925 Victor Lustig convinced the scrap dealers of Paris that the sale of the Eiffel Tower was confidential. That way, nobody checked it.

How to use the checklist

• Write down your answers. Next to each question, note the answer and where you got it. If the only source is the seller, mark it as unanswered.
• One bad answer is enough. It isn't a score: an unregistered firm or a withdrawal that comes with a toll is reason enough to stop.
• Go through it with someone else. Explaining an investment out loud to someone who has nothing to gain from it takes apart a lot of traps.
• If it was offered to you online or over the phone, also run it through the MATERIUM scam checker, which works only in your browser.

Why these questions work

The big scams change their disguise, not their mechanism. They target five human levers: greed, trust, authority, fear of missing out and shame. Questions 5 to 7 stop greed; 1, 2 and 8, misplaced trust; 9, borrowed authority; 12, the fear of missing the chance; and going through the list with someone else defuses shame. Every MATERIUM episode ends with one of our Laws of Deception, which sums up how one of those levers was pulled in a real case.

If an answer comes too late

If you've already invested and now you see red flags, don't send any more money and don't pay anyone who promises to recover it. Follow the steps in what to do if you get scammed: call your bank, keep the evidence and report it. And if you want to ask before you decide, the FCA's consumer helpline in the UK answers on 0800 111 6768; in the US, you can send a question or tip to the SEC.