We Know: Beware of Investment Fraud

What is investment fraud?

Investment fraud is an intentional misrepresentation of information with the purpose of stealing money from another person by causing him or her to expect a profit. Companies often operate a fraudulent activity for a short time, quickly spend the money they take in, and close down before they can be detected.

What types of investment fraud exist?

Some common types of investment schemes are:

  • Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. The scheme works on the principle of using money from new investors to pay off earlier investors.
  • Pyramid scams use product sales to attract investors, but rely on using money coming in from new recruits to pay off early stage investors. People interested in buying the products are convinced to join for price benefits.
  • International fraud artists use an investment scheme called Prime Bank Notes that offer extremely high yields in a relatively short period. They claim to have access to "bank guarantees" which they can buy at a discount and sell at a premium. The purpose is to encourage the victim to send money to a foreign bank where it is eventually transferred to an offshore account that is in the control of the con artist.
  • Affinity frauds undercut the usual warnings about investment schemes promoted by strangers. In Affinity Fraud  rip-offs, victims fall prey to swindlers who claim that their shared membership in an ethnic, minority or religious group makes them especially worthy of trust. Con artists recognize that the close-knit nature of many groups makes it less likely that a scam will be detected and that victims will be more likely to forgive one of their own.

Who is normally targeted with investment fraud schemes?

The elderly are preyed upon by investment scammers at an alarming rate. Experienced investors are also fooled regularly. The internet allows these scams to be presented in many original ways, so just about anyone with internet access can fall victim to investment fraud.

How do I recognize investment fraud?

Listen for certain keywords and phrases that will tip you off to the “opportunity” being illegitimate.

  • "Ground floor opportunity"
  • Guarantees of big profits in a short time
  • "No risk"
  • Pressure to act now serves as a signal to walk away

How do I avoid investment fraud?

The following tips will help you avoid investment fraud:

  • Invest only in opportunities you know something about
  • Be skeptical about unsolicited phone calls about investments
  • Research the company and verify the data
  • Never allow testimonials to persuade you
  • If you have any doubts, do not invest.

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