Your Money: What to know before investing in a new business

If friends or family members are raising money for a new business, it is worth asking the right questions about whether they plan to register with federal agencies.

The National Crime Prevention Council (NCPC) and the Financial Industry Regulatory Authority Investor Education Foundation (FINRA Foundation) have partnered to warn American investors and consumers about the classic types of investment fraud.

Their website - www.saveandinvest.org - offers tips about what questions to ask and how to check out a prospective investment.

Classic investment frauds include "pump-and-dump" scams, where brokers tout small public companies and then sell once retail investors have bought into the scam, and pyramid or "Ponzi" schemes, where early-stage investors are paid fictitious returns from money provided by later investors.

"Always start at our website, and if the broker or business owner isn't registered or planning to, then run in the other direction," said Ann Harkins, president of the NCPC.

Crowdfunding portals will soon have to register with FINRA's database as well, said Gerri Walsh, president of the FINRA Foundation, as soon as the rule-making wraps up in a few months.

Here is what a prospective investor should know:

Whoever is offering the investment opportunity should be asked, "Is this registered with the Securities and Exchange Commission?"

If the answer is no, ask why. Not all securities offerings must be registered with the SEC. Securities issued by municipal, state, and federal governments are examples.

The SEC also provides exemptions for small public and private offerings under a rule known as Regulation D.

For more information, read the SEC's Microcap Stock: A Guide for Investors, at http://bit.ly/17qSBB5.

If you believe a broker or brokerage firm has already defrauded you, contact FINRA's Office of the Whistleblower: 1-866-96-FINRA (1-866-963-4672).

To report fraud or wrongdoing in the securities industry, contact the SEC's Office of the Whistleblower: 202-551-4790.

Now, if you are a legitimate business owner, what is required for a small or start-up business to raise capital under the new federal securities laws? A good starting point would be the Securities and Exchange Commission's website (http://1.usa.gov/4kUbvU).