How not to be a victim of fraud
Of all the scams and schemes in nature, there is no such thing as financial investment fraud.
There’s a reason this type of fraud sits so high in the chain of nightmares that can happen if you’re not careful: it will cleanse you 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 discusses the different types of investment fraud and how to avoid falling victim to it.
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 types of investment fraud to watch out for:
Social media and internet investment fraud.
Scammers create fake social media profiles, pretending to be part of a network or group of people using social engineering tactics. By joining groups and actively participating in the community, the criminal builds the confidence and credibility needed to succeed in the scam. This type of fraud can spread quickly through the victim’s network of friends and contacts.
Steps to Protect Yourself:
- Beware of people you meet online. If the connection to the person is vague at best, treat it like a red flag.
- Never share your information with people online and keep your profile private.
- Use an identity theft monitoring service that can alert you to any breach or trace of your identity being used elsewhere without your consent.
Promissory note scam.
Sold by sellers of legitimate securities, promissory notes are a low risk investment with a reasonable return. Criminals lure investors in with promissory notes with a high interest rate of over 15% per month. The victims are usually the elderly and others living on a fixed income.
Don’t be a victim:
- Beware of promissory note offers that offer above-standard return with little or no risk.
- Do your due diligence. Look for the investment and the people promoting it.
- Always check to see if the offer has been subject to state regulation and SEC registration. Notes that are nine months or less in duration do not need to be registered with the SEC and present a higher risk of fraud.
Ponzi and Pyramid schemes.
A Ponzi scheme is a fictitious investment opportunity that has little or no physical assets. The criminal tempts investors with quick returns and high returns. The ploy is to reimburse the first investors by using the funds of the new ones first. When the total number of investors increases and the supply of new potential investors dries up, the bubble bursts. Pyramid schemes work the same way, using recruiting new investors as a way to secure more returns.
Avoid a Ponzi scheme:
- Conduct in-depth research into the investment and the people behind it.
- If the offer promises “high returns, fast,” consider it a red flag.
- Some pyramid schemes will have actual products. Check if these are worth the investment.
- Cryptocurrency fraud is often a pyramid scheme. Don’t fall for people who claim you can get cheap Bitcoin by joining a tiered marketing company.
Real estate investment fraud.
Real estate investment scams usually start with an aggressively marketed seminar. The pitch: Real estate investments are a better alternative to traditional pension plans. The crooks will parade “real people” who will claim to have tripled their investment. The reality is, this is just a big hoax, and everyone is involved in the scam.
How to avoid real estate investment scams:
- Beware of investment arguments that involve a “turnaround of ownership”. While not illegal, fraud occurs when crooks misrepresent a property’s value or the price when it is returned. They can also embezzle borrowed funds for personal gain or use the names and credit scores of the investor for other scams.
- Another argument is a “hard money loan” where investors pool their money to finance the purchase of a property. This type of balloon is tempting for investors because these loans come with high interest rates.
- Fraud happens when the borrower and the lender work together. The borrower defaults on the property they already own, making it difficult for investors to recoup their investment as the lender can reclaim the property and sell it.
Daniel William is Content Director and Cyber Security Consultant at IDStrong. His great passion is maintaining the security of the organization’s online systems and networks.
He knows that individuals and businesses face the constant challenge of cyber threats. Identifying and preventing these attacks is a priority for Daniel.