Investment Scams


Scam artists are out in full force and looking for ways to con unsuspecting consumers out of their hard-earned cash. The world of investing has always been risky, but the wave of current investment scams can make the landscape even more treacherous to navigate.

What Are Investment Scams?

Investment scams are any fraud that involves the illegal sale – or proposed sale – of a financial instrument such as a stock. These schemes are typically characterized by offers of unregistered securities, overly consistent returns, complex investment strategies, guaranteed returns or no-risk investments.

These devious scams look to infiltrate specific groups of people such as those with a common religion or ethnicity. The con artists cash in on the common ground of members of these groups to build trust and then perpetuate an effective fraud against them.

Specific Examples of Investment Scams

Four specific investment schemes have gained traction in recent years.

This quartet of deceptive practices include:

  • Pyramid schemes
  • Advanced fee fraud
  • Market manipulation fraud
  • Ponzi schemes

Pyramid Schemes

With this particularly insidious type of investment fraud, targets are not only victimized themselves, but they are recruited to help victimize others through the payment of recruitment commissions.

The money collected from these new victims is used to pay small commissions to the earlier targets and so on and so forth into perpetuity.

Each new “investor” is promised riches in a trickle-down – and up – methodology but only the guy at the top of the pyramid – the con artist – is getting rich.

Advanced Fee Fraud

Con artists committing advanced fee fraud promise their targets something of value such as a gift, investment, contract or loan. All they have to do to take advantage of this wonderful opportunity is to pay a small fee.

The target never what they are promised if anything. Worse, the thieves often get a ton of personal information from their marks such as bank account info, Social Security numbers and more.

This means they can further victimize their targets in the future with other schemes and scams.

Market Manipulation Fraud

Also known as the pump and dump, this clever investment scam takes advantage of how the stock market and security valuation work. Con artists target securities with low trading volume which are traded through over-the-counter transactions.

They artificially inflate the price of that security through misleading and outright false statements that create a higher buying pressure, which in turn, drives up the value of the stock.

That is when they cash in by selling off their interests in that security. This leaves the average investor who bought in at the inflated price stuck taking a loss.

Ponzi Schemes

Like pyramid schemes, the Ponzi scheme takes the money from new targets to keep earlier targets deceived. People caught up in a Ponzi scheme may also unknowingly recruit their friends as new victims, but it is not a hallmark of the scam.

The key here is the large amounts that people are scammed out of in a Ponzi scheme. They are promised high returns on sure investments and paid just enough “dividends” by the con artists to be kept on the hook while they pocket the vast majority of the money.

How to Spot & Avoid the Scam

As the adage says, if it looks too good to be true, it probably is.

That applies to investing your money as much as anything else. The best way to spot and avoid a scam is to pay attention, do your homework and question everything.

Be vigilant and your own best advocate. Ask questions, lots of questions. The scammers are counting on you to make an emotional decision. Throw them off balance by digging up the dirt yourself by independently researching everything they say.

While you are at it, make sure that you understand what you are investing in before throwing your hard-earned money at it. Hunt down the company’s financial statements and other information through the Securities and Exchange Commission’s (SEC) EDGAR system.

EDGAR stands for Electronic Data Gathering, Analysis and Retrieval. It is the primary source for all the information that is required to be filed by law with the SEC.

If you do not already know the person touting the investment opportunity, make sure you check them out. Ask for their state licensure information and research any run-ins with other investors or regulators. The SEC and Financial Industry Regulatory Authority (FINRA) keep online databases where you can investigate the disciplinary history of investment advisers and brokers.

Be especially wary of investing in penny stocks. Research these low-cost investments carefully as they are often the target of pump and dump scams. This is also true of unsolicited offers and foreign or so-called “offshore” investments.

The best way to avoid investment fraud is vigilance. Keep yourself informed and always dig deeper. Acquaint yourself with the red flags that may signal fraud and be your own best defender.

What to Do If You Are A Victim

If you believe you have been targeted by an investment scam or feel you have already been taken advantage of, the first thing to do is report the scam to regulators. There are several agencies established to help those who have been targeted by investment scams. These include:

  • U. S. Securities and Exchange Commission (SEC): File a complaint online or call the toll-free number 1-800-SEC-0330 (1-800-732-0330).
  • Financial Industry Regulatory Authority (FINRA): Submit a tip online or call their toll-free phone line at 844-57-HELPS (844-574-3577).
  • Internet Crime Complaint Center: A partnership between the National White Collar Crime Center and the FBI, you can report investment scams through their website.
  • U.S. Commodity Futures Trading Commission: Consumers can file a complaint or tip on their website or call one toll-free at 866-366-2382.
  • Federal Trade Commission (FTC) Complaint Assistant: Lodging a complaint here will enter the scam into the Consumer Sentinel Network to help local law enforcement track and stop investment fraud.

You should also report the crime – for that is what investment fraud is – to local, state, and federal law enforcement. This includes filing a police report with your local law enforcement, calling your state’s Attorney General and the local FBI office.

You can also submit an online tip to the FBI via their website.

in Monitoring & Protection
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