25 / 03 / 2020

Investment Scams Targeting the Investor

It is estimated that every year American investors lose between $40 and $50 Billion dollars to fraud per year. Furthermore, 17% of the adult population will fall prey to investment scams on a yearly basis. Successful fraudsters know exactly how to scam the unsuspecting investor.

We have all seen “seeking investor for funding”, “looking for an investor, profits guaranteed”, or “High returns possible” phrases in solicitations. Whether these are all scams it is hard to tell but there are a few things to watch out for. What are the most common scams to look out for when wanting to invest? Amongst others are advance-fees, wire transfers, and credit card scams.

Advance-Fee Fraud

A common example of this type of fraud is the “Nigerian Oil Investment” e-mail we all seem to receive. As comical as it may seem, not all e-mails look like fraud and can be easily taken for an e-mail from a legitimate broker or agent. The story is usually the same: the investor has to pay a fee to gain access to great investments. Some of these scams may even refer to investment risk factors and will mimic the exact e-mails received from legitimate sources. So how does one know the difference?

First off, an investor has to do their own research. Never accept other investors as proof of a legitimate business unless you know them personally. Second, research the company you are going to invest in, ask for business plans and public records. Particularly look out for requests to wire money. Transfers of this type are usually a red flag.

Wire Transfers

The most important thing to remember here is “If you wire your money outside of the U.S., and it turns out to be a scam, you likely will never see your money again.” Investors need to remember that anytime they invest, whether that be a foreign or domestic investment, they should look for certain clues that should flag the investment 

-          The funds are being sent to a person

-          The funds are being sent to a mailbox or virtual address; or

-          A note is to be attached stating the funds are for a purpose unrelated to investment (personal loan to family or for private expenses.)

 

In a case not too long ago, the SEC took action against one such scheme that used boiler-room-like call centers to solicit investors. Investors paid for investments through wire transfers or credit cards. In the filed complaint, many investors stated they had lost a significant portion of their capital.

Credit Cards

Fraudsters will typically ask for a credit card, or wire transfer as stated above, to fund the investment. Under normal circumstances, licensed or registered companies will decline an investment to be granted through credit cards. The investment should set off red flags if:      

-          The investor is encouraged to open new credit or increase their existing limit(s)

-          Investors are asked to split payments

-          The investor is told they will make enough in returns in the next 30 days to pay off the credit card bill.

 

The bottom line is that no investment is guaranteed. Anyone offered high or guaranteed returns should immediately be skeptical. Investing always carries a risk, and no guarantees can be made, especially in start-up investing. If you think you may be dealing with a scam check the scam checklist on our site or speak with an advisor.

 

Note: At Gaininvestors.com we do our best to delete ads that raise flags; however, as we are only a platform and not advisors or an investment firm, we cannot guarantee that all investments are legitimate. We urge the investor to perform due diligence and we request that investors inform us if suspicion arises.

return to the list of articles