Decoding the Enigma of Investment Scams for Financial Guardians

What is an investment scam?

An investment scam is frequently disguised as a “high return, low risk” deal. These investment alternatives might include stocks, real estate, term deposits, bonds, mortgages, options or foreign currency trading, crypto currencies such as bit coin, betting syndicates, or even flawless prediction software, all with the intention of stealing an investor’s money.

Scammers portray themselves as bankers, stockbrokers, financial planners, or other investment professionals. They seem expert and confident on investment matters and even lead you to real-looking websites and pitch documents.

Warning signs of an investment scam

• Claims of low risks with high returns: Always keep in mind, if something appears too good to be true it most likely is. If someone assures you of ‘guaranteed returns,’ be cautious as this should raise a red flag.
• You are contacted suddenly: You get a call, email or message on social media from someone offering unwanted guidance on investments.
• High-pressure techniques: You receive repeated calls and are advised to invest right away or risk missing out.
• Keep in mind that you have fewer protections when investing in crypto currencies, and con artists are aware of this.
• Someone you aren’t acquainted with gives you investment advice: Never listen to financial advice from someone you come across on social media or a dating app.
• Use of celebrity endorsements or images: These are generally fraudulent. Celebrities seldom speak about their investments or financial decisions publicly.
• Someone has compelling marketing or websites: If documents like brochures aren’t listed with ASIC, it is possibly part of a scam.
• For each transaction, you must deposit funds into a different account: Scammers may claim that this is for security reasons or that they are a multinational corporation.

What are some common investment scams?

1. Affinity Fraud: Investment Scammers employ deceptive tactics in an attempt to deceive individuals who have come together in a group formed around a shared characteristic, such as age, ethnicity, or religion. Scammers pretend to be a member of the group to earn the trust of the leader and its members. The scammers expect that if the leader puts in money, others will also follow.
2. High Yield Investment Programs: Scammers claim you’ll gain high returns on your funds if you put in money with them. They claim that you will profit from your investment. Often these investments don’t exist or they’re really selling stocks that have virtually no worth.
3. Pyramid Schemes: Scammers will persuade you that a tiny investment might result in a substantial pay out—or profit. However, you must also locate additional investors. The “profit” you receive is just money paid by other investors. The plan collapses when the con artist runs out of fresh investors or takes all of the money and flees.
4. Ponzi Schemes: A scammer—normally a portfolio manager—says he will invest your money and bring you large rewards. However, the money you receive is simply money paid by other investors. The scheme collapses when the scammers can’t find any new investors.
5. Pump and Dump: Scammers buy cheap stocks and falsely claim about the quality of the stocks to increase their prices to prospective buyers. You may believe that the stocks are a good investment, so you purchase them at a greater price. Then the scammer sells off the stock at a greater value, the stock price declines, and leaves you with useless stocks.
6. Recovery Room Schemes: Scammers state they’ll assist you in getting back your money after you’ve been scammed in other investment schemes, but you have to pay them beforehand. After you make the payment, they don’t take any action.
7. Unsuitable Financial Products: A financial advisor may attempt to push something that gives them a bucket load of money but is an unviable investment for you. Financial products such as annuities may require a long time to generate the revenue you were promised. And if you wish to take out your money, you might have to pay a huge fee. In general, certain financial advisors may bill you for services or products that you did not request.

Avoiding scams

If you or a loved one is contacted with an unwanted investment proposition, here are several strategies to avoid financial exploitation:

• Check credentials. Legitimate investment professionals are registered with FINRA, the Securities and Exchange Commission (SEC), or your state securities or insurance authority. You may check a broker’s credentials, registration, and job history using broker Check, a free online service provided by FINRA. Broker Check also includes a disclosure area that details client complaints, disciplinary events, and certain criminal and financial concerns on the broker’s record.
• Adopt the perspective that “there’s no such thing as easy money.” Guaranteed earnings with no risk simply do not exist; every investment has some level of risk.
• Don’t go after the crowd. Affinity scams target people who share a social circle, religious group, or cultural origin. If someone claims that “everyone” is in on the scheme, they may be lying—or they may have already harmed a lot of your peers.
• Refuse to make a hasty decision. Real investment professionals will let you take your time to carry out your due diligence. If you’re given a short window to accept, walk away.
• Never feel pressured. Even if you’re given something for free, for e.g., a meal or a seminar, you don’t have to give anything to a salesperson. Don’t let guilt influence your investment choices.
• Request for documentation. Stocks, mutual funds, and ETFs are usually needed to have a proposal, and bonds are mandated to have an offering circular. Without any proof, the securities may not be listed with the SEC—which typically avoids them from being publicly sold.

Other strategies to safeguard oneself

• Never acquire an investment product based on an unsolicited offer.
• Keep your financial details private: Account numbers, user names, logins, passwords, and personal identification numbers should never be shared.
• Keep your valuables in the hands of a reliable business.
• Never put money into a product you don’t comprehend.
• Inquire about expenses and risks, and want written replies.
• Check with a trustworthy advisor or friend to confirm what you’ve been taught.
• Ask and think about what’s in it for the vendor.

Above all, keep in mind the old adage: if it sounds too good to be true, it generally is.

Have you been tricked?

If you believe you have given your bank details to a trickster, or have wired money to the con artist, notify your bank or financial institution instantly to find out if the transactions can be turned back and to make certain that no additional payments are sent to the scammer.