Investment Scams By: Adam Majka

What is investment fraud? Investment fraud is the use of false advertisement to get investors to purchase what seems like a lucrative investment but in reality they usually lose a lot of money by making the investment. The elderly most often experience investment fraud because they have to generate money since they are retired or about to retire. Teenagers are also one of the most prone to investment fraud because of their lack of experience in investing. Both age groups are most likely to be scammed because they are easily tricked compared to adults.

How common is investment fraud? Investment fraud is common because fraudsters will try to take advantage of anyone. Last year more than 2.4 million people were victims of scams. People will lose hundreds of millions of dollars a year to investment scams.

Ponzi and Pyramid Schemes Organizer convinces a group of investors to give him their money and promises that he knows that they will get high returns. The organizer keeps the money for himself and tries to get more people to invest. When they invest the organizer takes that new money and pays back the original investors. This keeps continuing until eventually the organizer can’t come up with enough money to pay back the new investors. There is no way for the new investors who didn’t get paid to get their money back. Although very similar the difference between a Ponzi scheme and Pyramid scheme is that the fraudster will only ask you to make an investment in a Ponzi scheme. With a Pyramid scheme everyone is involved. The schemer just starts the franchise and has everyone else below him/her to recruit others and the schemer takes a certain percentage from everyone.

Pump and Dump Stock brokers are informed about a stock that is about to do well and they buy a lot of that stock before telling investors. The value of the stock sky rockets very quickly and then they sell it before the value of that stock plummets. This practice is highly illegal. Many of the investors lose their money by investing in that stock just before it plummets.

Offshore Investing Investors are tricked by fancy websites and seminars to invest in foreign real estate and are promised high returns without any risk. Investors are not really buying anything and they can’t get their money back because they are not protected under U.S law.

Prime Bank Organizer tells investors that he has access to “bank guarantees” that he can get at a discount. If the investors gave him the money he would buy the discounted guarantees and sell them at the normal price. If he did this process over and over the investor would make a large profit. In reality, the investors send their money to the guy’s foreign bank account which he transfers to an offshore account and they never hear from him again.

Promissory Notes Promissory notes are a way for people to get rid of their debts and are usually sold by private insurance agencies. The organizer convinces brokers and insurance agents to have some of their clients buy these promissory notes. The organizer isn’t from the U.S and when he receives the money he just keeps it. The investors have no way to get their money back.

Precious Metals Investors buy bullion from the fraudster which is a common practice. The fraudster tells their investors that they bought them bullion (a mass of precious metals) and over time tells the investors that their bullion is growing in value. In reality the fraudster never bought them their bullion and is just lying to them about their bullion’s growing value. The fraudster is just pocketing the money, knowing that the investors will never check their account.

Life Settlements  “A Life settlement is generally the sale of a life insurance policy on an insured that has a life expectancy of 2 years or more.”  It differs from a trust because a trust has to do with giving the title of a piece of property.  Organizer takes advantage of a terminally ill person by selling them a fake life settlement. When the person eventually dies the organizer just keeps the money and whoever the terminally ill person wanted the money to go to never gets the money.

Foreign Exchange Trading Organizers tell investors that by using propriety software programs or by using complex algorithms they can somehow take your investment and trade in foreign currencies to generate large profits. These organizers are just running Ponzi Schemes and keep the investor’s money.

Affinity Fraud The fraudster trick groups of people by getting them to trust him. The groups targeted are usually religious or ethnic groups. The fraudster joins this group and once he gets them to trust him, he gets them pool their money together to make an investment in whatever the fraudster wants them to invest in. He takes their money and runs away with it, never to be heard from again.

Green Schemes The fraudster convinces people to investment new environmentally friendly sources of energy. They also take advantage of current events like the Gulf Oil Spill and will have people invest in the clean up process of the oil spill. The fraudster just keeps the money and runs.

Insider Trading Insider Trading is the investment of stocks with the use of hints about companies that are not released to the public. This is highly illegal because when these tips are used they always generate high profits or are used to prevent bad stock investments. This is what Martha Stewart went to jail for.

How to Avoid being Scammed If it says it is guaranteed large profits without any risk, look into it because most likely it is too good to be true. Never invest in anything where your money is going to another country because it won’t be protected under U.S law so you won’t get it back if you are scammed. Make sure that the person who you are giving your money to is a licensed broker or agent. You can do this by going to and search for licensed brokers near your home. Look for records to see if people in the past have had made successful investments with the person/ company who you are investing in.

What to do if you are scammed Call the police and report what has happened. Look for programs around where you live that can help you with your financial problems. Help the police by giving them all the information about the fraudster and about how you were scammed. Be patient. If and yes I mean if you are lucky enough for the police to catch the fraudster it could take years to get your money back. I used if because most victims of investment fraud don’t get their money back.

Useful Websites scams-frauds-cons-ponzi-pump/3/31/2010/id/27527?page=1 to-sniff-them-out/ (has more links inside it) fraud.html

Questions What kind of people are most prone to being scammed and why? What is the first thing you should do if you are a victim of investment fraud What are two types of ways to avoid being scammed? What is investment fraud? After being scammed and your money is invested in another country, why can’t you get it back?

Answers The elderly because they need money for retirement and teenagers because their lack of experience in investing. Report it to the police. Never send your money to another country and make sure the person your giving your money to is a licensed broker or agent. Investment fraud is the use of false advertisement to get investors to purchase what seems like a lucrative investment but in reality they usually lose a lot of money by making the investment. Because it isn’t protected under U.S law.