How Not to Be a Victim of Financial Investment Fraud

Of all the scams and schemes out in the wild, there’s nothing quite like financial investment fraud.

There’s a reason why this type of fraud sits so high on the chain of nightmares that can happen if you’re not careful: it will clean you out and leave you in debt. The whole process leaves a gaping hole in personal finances, and some victims may never fully recover.

Financial investment fraud will exist as long as there are white-collar criminals like Bernie Madoff and people who buy into the ruse. This article talks about the different types of investment fraud and how to avoid becoming a victim.

Types of Investment Fraud and How to Avoid Them.

Before you can protect yourself, you need to know what you’re up against. Rule of thumb: if an investment opportunity is too good to be true, it probably is. Here are the most common investment fraud types to watch out for:

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Social Media and Internet Investment Fraud.

Scammers build fake profiles on social media, pretending to be part of a network or group of people by using social engineering tactics. By joining groups and being an active participant in the community, the criminal builds the trust and credibility needed to pull off the scam. This type of fraud can spread quickly through the victim’s network of friends and contacts.

Steps to Protect Yourself:

• Be wary of people you meet online. If the connection with the person is vague at best, treat it as a red flag.
• Never share your details with people online and keep your profile private.
• Use an identity theft monitoring service that can alert you of any breaches or traces of your identity in-use elsewhere without your consent.

Promissory Note Scam.

Sold by legitimate securities salespeople, promissory notes are a low-risk, reasonable return investment. Criminals entice investors with high-interest promissory notes of over 15% monthly. The victims are usually seniors and others who live on a fixed-income.

Don’t Be a Victim:

• Watch out for promissory note deals that offer a higher than standard return with little to no risk.
• Do your due diligence. Research the investment and the people promoting it.
• Always check if the offer went through state regulation and SEC registration. Notes that have durations of nine months or less don’t need SEC registration and carry a higher risk of fraud.

Ponzi and Pyramid Schemes.

A Ponzi Scheme is a fictional investment opportunity that has few or non-existent physical assets. The criminal tempts investors with high-yield, rapid returns. The ploy is to repay early investors first using funds from new ones. When the total number of investors grows, and the supply of potential new investors dries up the bubble bursts. Pyramid schemes work the same way, using new investor recruitment as a way to guarantee more returns.

Avoiding a Ponzi Scheme:

• Conduct thorough research on the investment and people behind it.
• If the offer promises “high-returns, fast,” consider it a red flag.
• Some pyramid schemes will have actual products. Check to see if these are worth the investment.
• Cryptocurrency fraud often falls under a pyramid scheme. Don’t fall for people claiming you can get cheap Bitcoins by joining a multi-level marketing company.

Real Estate Investment Fraud.

Real estate investment scams usually start with an aggressively marketed seminar. The pitch: investments in realty are a better alternative to traditional retirement plans. Scammers will parade “real people” who will claim they tripled their investment. The reality is that it’s all a big hoax, and everyone is in on the scam.

How to Avoid Real Estate Investment Scams:

• Watch out for investment pitches that involve “property flipping.” Although not illegal, fraud happens when scammers misrepresent the value of a property or the price when flipped. They can also misappropriate borrowed funds for personal use or use the investor’s names and credit scores for other scams.
• Another pitch is a “hard-money loan” where investors pool their money to finance the purchase of a property. This type of ball is tempting for investors because these loans command high-interest rates.
• Fraud happens when the borrower and lender work together. The borrower defaults on the property he or she already owns, making it hard for investors to recoup their investment because the lender may scoop the property up and sell it.

Author Bio

Daniel William is Content Director and a Cyber Security Consultant at IDStrong. His great passion is to maintain the safety of the organization’s online systems and networks. 

He knows that both individuals and businesses face the constant challenge of cyber threats. Identifying and preventing these attacks is a priority for Daniel.