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2022-05-17 • Updated

Top 10 Investment Scams

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The world of investments has a lot to offer in terms of schemes to mislead or – should we choose not to look for euphemisms – defraud anyone not cautious enough. Now and then, scammers come up with something new to help other people get rid of their money.

Take a look at the list of the top ten investment scams that are still used to a great extent these days and are not going away anytime soon. By learning about these schemes, you will prepare yourself for the journey through the ruthless and cynical world of investments with scammers lurking at every turn.

Pyramid schemes

Our first pick is arguably the world’s most popular scam type – the pyramid. Some say that pyramids have stolen more money than any other scheme. Another name for a pyramid scam is the Ponzi scheme. It comes after a real-life person, Charles Ponzi, an author of one of the best scams ever.

Circa 1920, Ponzi managed to steal $20 million from his clients. The scheme Ponzi used was fairly simple. He promised his clients impressive returns in a very short time and thus, had people invest in his Security Exchange Company. Ponzi paid early investors with the funds from new investors which is how every financial pyramid works.

A pyramid can span over years and even decades as long as there are no excessive demands for withdrawals. Because if that happens, the scheme falls apart and things go down the drain so only the luckiest of investors get to return some bits of their investments.

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Promissory notes

A promissory note is a debt instrument that contains a written promise by the note's issuer or maker to pay the note's receiver a certain sum of money on demand or at a specified date in the future.

Typically, promissory notes are issued by little-known or even non-existent companies promising high returns with little to no risk at all. This is a popular scam to get elderly people to lose their savings. By investing in promissory notes with hopes of funding their future during retirement, seniors lose hundreds of thousands of dollars.

Affinity group frauds

Affinity group fraud is one of the most cynical investment frauds examples. Such a fraud targets certain demographics, for example, ethnic communities, religious congregations, or social groups. Ranging from so-called gifting programs to Forex investment scams, affinity group frauds cover all kinds of groups within society. Scammers use their victims’ best intentions for their financial gain.

Pump and dump

With a pump-and-dump scheme, a fraudster would first boost the price of a stock by giving false information about the company, and then, when the price is high enough, they would dump the hyped shares into the market. Hence the name of the scheme.

Investors would usually come across such stock market scams on the Internet through messages that urge readers to buy stocks quickly. Claims about some sort of “inside” information are pretty common, too. As a result, investors lose their money since when the hype is gone, the stock price falls. 

Binary investment scams

Imagine payouts depending entirely on the outcome of a yes/no proposition and relating to whether the price of an asset rises above or falls below a specified amount. Also, imagine that you, as an asset holder, have no control over it, since the asset exercises automatically. That’s what a binary option is, in a nutshell.

Binary options are something a cautious investor should avoid. Binary options trading platforms oftentimes may be engaging in illegal activity and have an overall negative reputation. For instance, things like identity theft, manipulation of software, and refusal to credit customer accounts or reimburse customer funds are among the most common issues of such platforms.

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Advance fee frauds

Here’s a scheme: an investor is asked to make payment beforehand because this is the only way they can receive money, stock, etc., otherwise, the deal is off. That’s pretty much how advance fee frauds work.

In this scam, the requested advance payment may be described by a fraudster as a fee, some sort of tax, or commission. Or it may be explained as a certain expense that had not been foreseen but the investor has to make this payment to keep the deal going. Of course, this expense is promised to be repaid later, which is, as you can guess, a lie.

Another common advance fee trick is that an investor may get an offer to sell their underperforming securities with a condition to pay an “advance fee”. The result is the same – the gullible investor loses even more money.

To make their offers look legitimate, advance fee fraudsters may even hire escrow agents or lawyers; they also swindle investors by using official-sounding websites and e-mail addresses.

Microcap frauds

The term microcap describes the stock of a smaller company with a market capitalization of $50 million to $300 million. The thing about microcap stocks is that coming from companies with a small market capitalization, they are usually traded on stock exchanges that do not require minimum standards, such as a minimum amount of net assets or a minimum number of stockholders.

Another thing to be aware of is that there is usually not much information about microcap companies and their stocks, which lays fertile ground for market manipulation and fraud.

Microcap frauds usually go in line with the pump-and-dump schemes, which means that the stock price gets pumped and then stocks get dumped, leaving investors with nothing.

Prime bank scams

Prime bank fraud is a scheme where an investor gets an extremely tempting offer to buy some sort of secret financial product. The offer comes with a discount which makes it even more appealing. But, of course, there is no such product in reality. It’s just fiction used to catch an investor off guard and get them separated from their money.

The key thing about prime bank scams is that they use the common belief that the ultrawealthy have exclusive investment opportunities unavailable to the general public. This idea makes a gullible investor fall for the promise of exceptional short-term returns coming from someone who knows the deal.

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Internet frauds

Welcome to the World Wide Web, a digital universe abound with information and countless possibilities to… get swindled. Yep, financial fraudsters are no strangers to the Internet. In fact, it’s been a pretty while since bad guys found their way of using the net to their advantage. 

Investment newsletters, junk emails, online bulletin boards, chat rooms, social media platforms, and, of course, cryptocurrency investment scams – fraudsters use all of those to lure their victims and rip them off. The Internet is really a dangerous place where one must be 100% cautious when it comes to where you decide to put your money.`

Online investment frauds schemes are nearly countless. We advise you do your research on the most recent investment frauds of that type to see how scammers pulled them off. You’re in for an amazing scams list, we promise.

Investment seminars

Finally, here’s a scheme that many may not pay attention to, although it’s pretty popular. While not purely stock scams, seminars arranged by fraudulent hosts are also types of investment frauds scams.

Scammers would attract you with the promises to give you an insight on how to make more money, get insanely rich in the shortest amount of time, or build a strategy that will instantly change your life for the better. In fact, the only ones who gain from such seminars are those who are presenting them.

While enchanted by a scammer’s charisma and eloquence, you give them your money to attend their shows, you ignore the simple question that sounds like this: if their ideas were that great, would they be so willing to share them with the rest of the world?

How to avoid investment scams?

Stock scams, Foreign Exchange investment scams, Bitcoin investment scams, unregulated investment scams – the number of fraudulent schemes is astounding. And more are being invented as you read this text.

So your best option as a concerned investor is to learn to see through each offer and be able to tell whether it’s a scam or not. In other words, you should know how to spot red flags and green lights.

Here’s what should alert you:

  • An offer comes from an unlicensed broker.
  • A seller is way too aggressive, providing exaggerated info.
  • An offer sounds too good to be true.
  • The seller offers a ‘risk-free’ investment opportunity.
  • You are promised massive guaranteed returns and short-term profits.
  • The “Everyone’s buying it” claim.
  • You are urged to invest right now or you will miss the opportunity.
  • You are given sensational claims and ‘insider’ information.
  • A seller seeks to obtain your personal information.
  • You are asked to pay for investments with a credit card.
  • The payment must go to a personal account or abroad.
  • The advance fee request.

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Some offers may include more than one red flag listed above, while some may seem okay at first, so be alert and look for a catch in every investment opportunity that comes your way. Ask questions, do your own research and conduct a thorough background check on any investment.

Another thing to keep in mind is that great investment offers don’t usually come to you just like that – instead, it’s your job as an investor to look for the best offers for your money.

And finally, try not to get greedy, because that’s where all troubles come from.

As far as green lights go, there is no safer option than to work with a licensed broker, a company with a long-term and trackable record. A reliable broker will provide a wide range of legitimate investment options and tools to control your investments.

Take FBS for example. We always try to deliver our clients top-class broker services by providing a broad choice of trading instruments, applications to invest on the go, market updates, and educational materials to deepen their knowledge and master their skills.

Conclusion

According to statistics, over 30 million people fall victim to various investment scams. This is an insane number. And it gets even more insane with the fact that most investment fraud victims are financially literate.

This doesn’t seem to make any sense, except it does. The thing about any scam is that it should seem legitimate and not raise suspicion. That is why it is more important not to count on your knowledge of the market and finance but rather to be cautious and inquisitive enough when making investment decisions.  

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