How to Avoid Investment Fraud


Investment fraud and scams will not only deliver a fatal blow to one’s security, but it can also deliver a fatal blow to one’s ego. Most times, if an investment is too good to be true, well, you know the rest… That’s why all too many reasonable-minded people would never admit that they were defrauded, due to the shame of being “taken”. Yet, the best thing to do in this situation is not to wallow in a deflated ego, or recede back into the depths of despair, but to take action!

Most importantly, please keep in mind that investment fraudsters are very crafty in their planned attacks; and will alter their approach many times in order to phony up their illegal plan. That is, their approach may change, but the basis of the investment fraud will always remain the same. Therefore, it is important to recognize the 5 types of investment frauds, no matter what the approach.

Investment Fraud #1: Pump-and-Dump Scam

This scam involves fraudsters who buy worthless or low-priced stocks, then creates a buzz or false hype (pump) around the trading company. This generally peaks the interest of uninformed investors who then buy these stocks, thinking that they are getting a good deal. Consequently, due to the fact that there is demand surrounding this stock, the price of the stock begins to rise. The scammers will then quickly sell (dump) their stocks, at the now inflated price, and exit the game. This leaves many people holding shares of stocks that are worthless and invaluable. Typically, fraudsters that use this scheme will use emails (spam) or text messages to “market” their worthless stocks.

Investment Fraud #2: Ponzi Scheme

Here’s how it works. A fraudster collects money from new investors, supposedly to invest the investor’s money. However, what the victim does not know is that their money is being used to pay old investors who are also victims of this fraud. Specifically, this money is being used to either pay interest on old “investments”, pay back an old investment, or to pay for the fraudster’s new condo in Dubai. Therefore as you can imagine, the scammers consistently need to recruit new investors in order to keep the money flowing into the ponzi scheme. This record will play over and over again, as the fraudster’s scheme is dependent of the fact that they have to constantly get new victims, in order to keep the scam going and undetected.

Investment Fraud #3: Pyramid Scheme

Scammers claim that they can turn an investment into a sizable return, within a short period of time. However, the reality of this scheme is that no one makes money unless participants of the scam bring in new recruits. This is the only way money is made by recruiting other participants, who then recruit other participants. As the money flows in from the bottom, the top players are the only ones who benefit.

Believe it or not, this type of investment fraud is now being heavily perpetuated by fraudulent multi-level marketing businesses. These companies go through great lengths to make it appear that they are running a legitimate business. However, at the core basis, they are nothing more than pyramid schemes.

Investment Fraud #4: Offshore Frauds

Offshore frauds can involve all of the above previously listed scams, but are harder to regulate by our U.S. Government. Moreover, law enforcement finds it extremely hard to investigate fraud on foreign soil for obvious reasons. However, statistics show that offshore scammers will seek out U.S. investors to conduct their investment frauds; so be extremely careful when dealing with investments from other countries.

Investment Fraud #5: Advance Fee Fraud

This fraud preys on investors who have purchased low-priced stock, and thus wishes to reverse this mistake. A scammer takes this perfect opportunity to offer the investor the worthless stocks for a high price. In order to “seal the deal” the investor must pay the scammer a “advanced fee” for the priviledge of getting rid of the stock. If the investor agrees to the transaction, then the fee is paid. Consequently, the fraudster takes the “advanced fee” and leaves the investor with his worthless stock.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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