As most of us would agree, greed and gullibility fuel the growth of unscrupulous people and their myriad ways of deceiving the public through various channels. The scams we read about are diverse in nature and the investment industry has not been left untouched either. Below are some of the typical scams that we should be aware of and also let our near and dear ones know.
These schemes depend on the availability of enough victims to perpetrate the con. Pyramid schemes are sometimes referred to as network or multi-level marketing schemes. A well-known type is the Ponzi scheme, where the con artist uses the principal from the latest investor to pay interest/dividend to the previous investors. The scheme inevitably fails when the money owed to such previous investors exceeds the inflow from new victims.
Off-shore Investing Schemes
Such schemes are marketed with the promise of “great” and/or “guaranteed” returns through investments in exotic locations. The perpetrator seldom provides concrete details about the business they are investing in and if they do, the documents are likely to be forged. It should not surprise you if the cheating party goes as far as to set up a fake website about the business, thereby lending purported credibility to the scheme. Sometimes, the company could be legitimate but the marketer/tipster may wait for enough buyers to drive the stock price up and then, sell their own shares for a gain (see Pump and Dump and Short and Distort). The Internet can be a boon and bane and it is tough for local authorities to prosecute such foreign criminals.
Guaranteed Job or Work from Home Scams
As you would guess, such stellar opportunities almost always require a fee for processing the application or providing the operating procedure/plan for the business. Spam emails and cold calling are commonly used to lure victims. The tougher the financial/family situation of the victim, the easier it is for the scammer.
Investment and Real Estate Seminar Scams
Some con artists thrive by promising to share their secret to stock market or real estate riches. These con artists use high-pressure sales tactics and profit from the attendance fees paid by the victims. In addition, they could offer information about high-risk strategies masked as low risk/high return opportunities. Please note that there are legitimate seminars being offered and this section is not an attack on all seminars.
Business Proposition Scams
These could be once-in-a-lifetime email offers to assist a Nigerian prince or Malaysian business tycoon’s son. The victim is promised hundreds of thousands or millions of dollars (I am yet to receive a believable offer of just a few thousand dollars) if they assist the said person, who has access to millions of dollars. All one would need to do is call a number or reply to the email to discuss the details (provide bank info or pay fees along the way) about getting the money out of the originating country.
The next part of this series will touch upon a few more scams that are prevalent today. Have you or anyone you know fallen prey to one of the scams above? What recourse did you (or they) have?
About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).