Money Scams You Need To Know​: Investment Fraud

If you’re a regular reader of our blog, then it’s safe to say you’re interested in money. How to get it and, more importantly, how to keep it. The last thing you need is to fall victim to one, or two, or ten different money scams.

I know, I know…most of us feel that it would never happen to us. But since all of us here are into personal finance, I figured it’d be a good idea to talk about some of the money scams out there. That way you’ll recognize them when you see them and know to steer clear!

The sad thing is that there are loads of money scams out there, and each one comes in many different shapes and sizes. We’re going to go through the most common scams one-by-one.

Why do people get taken in by money scams?

Most of us dream of the day we achieve financial independence. We want wealth, freedom and a comfortable retirement. Money-oriented magazines have cover headlines like,

• “Money moves to make now”
• “Income is king: Strategic moves to build your wealth”, and
• “101 Ways to make $1,000”

because it sells. It’s what people want to know. And, unfortunately, creative con artists rely on our desire for a good life to take us for what we’ve got.

Related Post: Tax Refunds Cost  You Money.

Investment Fraud

Riddle me this…how do you see yourself achieving financial independence? Most of us would say “investing”.

It’s no wonder either, because that’s the common knowledge we hear everywhere. Go ahead and Google “how to get rich” and you’ll see article after article telling you to invest.

And hey, I’m not saying that’s not good advice. All I’m saying is that it’s what everyone says and believes.

That fact alone makes investment a prime target for fraudsters who are looking to scam you out of your hard-earned money.

But first things first. What exactly is investment fraud?

Investment fraud is a deceptive act that involves two things:

• First, to convince you (usually through deception) to invest money in a real (or fake) business or investment.
• And secondly, the fraudster takes that money and uses it for their own personal purposes or to keep their scheme going.

The specifics of investment fraud vary with the scheme, but most of them share similar characteristics.

FYI: Investment fraud is sometimes called securities fraud when it involves the violation of securities laws.

Characteristics of investment fraud

The details of the investment fraud depend on the con artist you’re (hopefully not) dealing with. But they all share similar characteristics.

If you spot any of these characteristics in a deal you’re thinking about getting into, be on high alert and do more research.

1) The investment is promoted as a guaranteed money maker with little or no risk:

Promised returns are often unrealistically consistent. And even if you’re skeptical, the fast-talking fraudster may have believable-sounding (although hard-to-understand) answers.

They may eventually get irritated with your hesitation and pretend they have better things to do, but the fact of the matter is that the higher the return, the more risk involved.

2) You’re promised an unrealistic return on your investment:

Often, the rate of return promised is above average or even completely unrealistic. But this ignored by investors who want to make a lot of money fast!

Other times, the return discussed sounds more believable, but the “potential profit” of the investment is much greater. The “potential profit” is the hook that gets investors.

Some con artists claim to know a secret loophole or new financial technique that nobody else has discovered yet. If you hear that, beware! And remember, it’s easy to offer you a 100% return on your investment if I have no intention of paying you!

3) There is a sense of urgency

It’s very common for you to be pressured into investing immediately. You’ll usually hear that unless you do it now, you’ll lose the opportunity of a lifetime!

The truth is, the scammer wants your money as quickly as possible with as little effort as possible. They may not want to give you time to do your research, or they might even be planning on leaving town soon, so they need your money today!

4) The investment is explained quickly but is difficult to understand:

Investing doesn’t have to be complicated. But in money scams like this one, the scammer makes it overly complex.

Often, when someone tries to dazzle you with complicated language, it’s either because they want to charge you higher fees for doing sophisticated mumbo jumbo, or they’re trying to separate you from your money.

Remember to keep it simple.

Related  Post: Get Rich Quick  Schemes- Advance Fee Fraud.

5) The scammer claims that other well-known people have already invested:

When someone’s trying to talk you into an investment fraud or other money scams, you’ll usually hear about some well-known individual or organization who’s already invested.

 It’s just a way to get you to drop your guard. After all, if they’ve done it, it must be legit, right? Wrong!

6) There is a constant need for new funds to keep the fraud going:

There are a lot of investment fraud out there were the early investors are actually paid big returns. This is just to make it look legitimate, and later investors usually lose big!

 So, if your friend is telling you about this golden opportunity where he made huge returns…I’d be a little cautious about running headlong into the same investment.

I should mention that some legitimate investments morph into these types of frauds. If the market declines, the investment will suffer losses. But sometimes the person managing the funds doesn’t want to tell that bit of bad news to his investors. When the manager makes the decision to mislead investors about their losses, it can quickly become fraudulent.

7) The scammer encourages you to keep your profits invested:

This makes sense. After all, the scam artist doesn’t want you to have the money. They want the money! But if they don’t pay the jig is up. So a nice “compromise” is for them to give you the money and encourage you to re-invest it for more profits.

8) Scammers encourage you take out some kind of loan to maximize your profits:

Most people don’t have large amounts of cash sitting in their bank account, but they do have homes they can use as collateral. This is why the scam artist often encourages home equity loans – to get access to cash.

 Remember, a legitimate adviser will rarely (if ever) advise you to take a loan out against your home.

You May Also Like: How to Prevent Money Fights in Your Relationship.

9) The investment pitch is usually pretty flashy.

You’ll often find that there’s a flashy sales pitch involved. Just keep in mind that it doesn’t take that much effort nowadays to create a colorful website and throw up some fake stats. Don’t rely on everything you see and your own research.

10) The fraudsters don’t look like criminals.

What do investment fraudsters look like? Well, they look just like you and me! There’s no tell-tale signs that would give them away. The don’t have horns and a tail despite what you may have heard in the news. And they won’t burst into flames if you bring garlic or a cross into their office.

 Many are people in positions of trust, with a boat load of credentials. Many are people you would place a lot of confidence in. Hence the name, con men.

11) You’re not given any information in writing about the investment

The last thing a scammer wants you to do is actually go and check out the investment they’re selling. So, it’s highly unlikely that they’re going to give you anything in writing about their company or give you a list of references. You’ll also be told that you don’t need to check out the investment with your lawyer, accountant, or even family.

If this is the case then you ought to be on red alert.

How to avoid Investment Fraud money scams

It’s like Warren Buffet says, “don’t invest in anything you don’t understand.”

Before you decide to give someone your hard-earned money, get as much information as possible about the investment. Discuss is with outside sources, and make sure you understand what’s going on.

Asking yourself these questions will help you decide whether you should invest or not:

• Would it matter if I lost this money? (You don’t want to risk money you can’t afford to lose)
• Would my standard of living, relationship, or ego be damaged?
• How much risk do I want to take on?
• Does the promised return seem reasonable considering the risk?
• Is the return guaranteed? If it is, who’s making the guarantee and how will they be able to live up to their promise if something goes wrong?

Related Post: Dave Ramsey’s Baby Steps to Financial Freedom.

Final Thoughts

Money scams play on your desire to build wealth to sucker you into giving them your hard earned money. Investment fraud is just one type of scheme, but it’s a big one.

Hopefully you now have a pretty good idea of what to be on guard for and how to protect your money from this money scam.

Cheers!