How to Spot an Investment Scam

investment scam

Have you ever had someone say they could make you rich if you handed over a few thousand dollars for them to invest? If you haven’t, and someone you know may have been a victim. Unfortunately, investment scams are all too common.

What is an investment scam?

An investment scam, or investment fraud, is when someone sells an investment asset illegally. This term can also apply to annuities, certificates of deposit, and insurance. What makes the transaction illegal? In some cases, the investment doesn’t exist. In other cases, the broker may make false promises or fail to disclose the risks associated with the product.

Some Examples

Fraud may not be easily identifiable as it varies in the presentation. Here are some examples of fraud.

  1. Investment seminars are a tool used to fraud large groups of people at once. The coordinators will recruit up and coming motivational speakers or millionaires to sell products or investments. There are several opportunities for scammers to make money at these events. Generally, there is an entrance fee, and you’re expected to spend large sums of cash at the seminar based on the high-risk formula for success provided. 
  2. Unsolicited proposals. If you receive a random phone call, direct message on social media, online newsletter, spam email, or an advertisement for a hot new investment, be wary. Any investment that is based solely on the number of people participating is lacking vital information. The Financial Industry Regulatory Authority (FINRA) says that you shouldn’t believe that “everyone is doing it.” Often, scam artists will target ethnic or religious groups to gain trust.
  3. Stock swindle. This stock deception, also known as the pump and dump, occurs when someone with inside knowledge buys in on a stock at a low value then increases the cost by encouraging loads of people to purchase. Once the initiator has made a massive profit, he will sell, and usually, the stock will plummet. Commonly, this type of scam uses lower-priced assets such as penny stocks or stocks less than $5.
  4. Guaranteed returns on your investment. There are no guarantees with investments. There are no guarantees, and there is always a risk when you invest.

Protect Yourself

However, there are ways to protect yourself

  1. You want to check the qualifications of any broker you hire. Ensure your broker is registered with the U.S. Securities and Exchange Commission (SEC) with a valid license before investing any money. Research the person and the company to ensure legitimacy on the FINRA and SEC websites. Additionally, you can see any disciplinary history.
  2. Research the investments or assets on your own, so you understand what you’re entering. If your broker presses you to go ahead without independent research, it is another red flag. Get all of the details in writing, then take your time reviewing all of the information.
  3. Ignore spam or flashy advertisements for asking for time-sensitive investments. If it is a limited-time offer for an investment, it’s more than likely a scam. Websites can be created quickly; having one doesn’t make the investment legitimate. Additionally, the FBI warns consumers not to be fooled by a beautiful website or presentation.

You can find more information regarding investment scams on the FBI or SEC website. 

Read More

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Avoiding Mortgage Scams: Don’t Fall for Unreasonable Promises

The Penny Stock List: What Are They and Who Are They Right For?

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