Investment scams are fraudulent business schemes perpetrated by persons so as to take advantage of others hoping to be potential investors. Most of the investments scams perpetrated nowadays are internet based mainly due to the fact that the internet is an open source of information sharing and cannot be regulated or governed. The internet is good at optimising illusions during an investment scam i.e. a well-designed elegant website can project any company as legit, grand and respectable. Many investment scams especially those on the internet are just modified and renovated to suit a specific intend.
Types of Investment Scams
- Investment offers that do not exist
- Investment offers exists but the funds are swindled by the scammer
- The scammer lies that they represent a renowned investment company
Common Enticing Investment Promises
- Quick and high returns
- Tax-free benefits
- No risk or low risk investment
- Inside information (first investor opportunity)
Frequently Implemented Investment Scams
Ponzi or Pyramid Scheme: This is a pyramid investment scheme whereby previous investors are rewarded with the cash influx from new investors. This investment scam can only be successful if the input from the new investors is greater than the returns owed the previous investors, which is usually seldom the case. This scheme often promises rapid turnovers and sometimes gives the opportunity to partner with other investors to partake in a great investment project. There are sometime instigated through someone known to the deceived.
Pump and Dump Scam: This is an illegal rip-off whereby a group of well-informed swindlers purchase and promotes stocks thus getting the price of the stocks up as more investors buy their shares and later selling them when the stock price is at its peak just before it collapses. The worth of the stock plummets hence the scam nomenclature. The stock price drops as fast as the rapid spike previously orchestrated. The scammed investor is then left with a bunch of worthless stocks.
Short and Distort Scam: This is a variation of the pump and dump scam. In this scheme rather than promoting and disseminating positive news, the scammers instigate a slander campaign in an attempt to plummet the stock price. Profit in this case is generated by short selling.
Pension Scam: This scam targets pensioners who have their retirement savings blocked in a retirement account. This money cannot be withdrawn from the account until the pensioner has attained a certain age (ordinarily > 54yrs). This scam proposes to the pensioner a means of avoiding the withdrawal limit and tax incurred during the withdrawal of funds from this account. The pensioner is dubbed into selling their investments and utilise the funds to buy shares in a promising start-up company and in return the scammer vows to loan to the former a significant percentage. The scammed pensioner is promised to be paid in cash hence no tax and still have a substantial hold in the blocked account. The investment is often than naught worthless and the pensioner may never see the loan and stand the risk of losing their retirement savings.
Off Shore Investing Scam: This is a scam concocted outside the country. It had as barriers (such as the differential time zones, difference in currency, and cost of international telephone calls) that have been brought down considerably with the coming of the internet. These schemes are difficult to track, investigate and the funds difficult to recover since the investment opportunity are initiated in a foreign country with its own jurisdiction and legislations.
Advance Fee Scheme: In this rip-off scheme the scammer deceives the victim to pay a certain amount up front with a rapid very lucrative reward or profit from the investment. Once the sum is received the scammer vanishes into thin air. The victims here are often investors that have lost their previous investments. The defrauder approaches the investor guaranteeing them they can recover the previous investment against a deposit.
Currency or Forex Scam: Investors buy and sell currencies at the foreign exchange (Forex) market in a bid to make profit from the differential currency exchange rates. The Forex market trading is risky and dominated by big international financial institutions with access to cutting edge tech and huge trading accounts. Due to the operation of some of these forex trading services in foreign countries where regulation and rules may not be observed, some forex trading services may be fraudulent or a scam. There is usually no means of verifying whether the funds received are invested as claimed. The victim is often asked to transfer money into an offshore account before the trading can kick-off. The funds become untouchable and the investor may end up losing all their invested funds.
“Prime Bank” Scam: The term “prime bank” generally refers to the approximate top 50 banks in the world. These banks trade in low risk quality trade instruments like IMF bonds and Federal Reserve notes. This term is used by defrauders as a means to obtain funds from investors against the promise of huge profits. These trade instruments regrettably usually never exist.
Unlicensed Sales Scam: The sales of fake insurance policies by an unlicensed insurance agent.
Commodity Scams: With the drop in the price of oil and gas many scammers now rip-off investors by making them invest in gold, silver, rare coins and gems. Investors are also pulled to investments in alternative energy that may seem attractive but can still be a scam.
Investment Seminars: People are invited for a seminar where the defrauder presents an appealing investment opportunity. The catch is that the investment must be done in situ. Once the seminar is over, the scammer and your money vanish.
How to Identify and deal with Investment Scams or fraud
- Calls or email offering unsolicited advice on investments
- Carry out research, get concrete information and verify credentials
- Do not be attracted by quick phantom riches
- Always take time to reflect on opportunities
- Contact competent authorities if you encounter a scam