Fraudsters will make investment offers that appear to be genuine, using information they obtain from social media or friends. Always be suspicious and check claims with someone else, such as a trusted professional.
Investment scams are often promoted through slick websites, or even encrypted group chats like WhatsApp. These scams promise high returns with minimal risk.
Imposter Scams
All imposter schemes involve fraudsters who pose as someone or something to convince you of sending money or personal information. These scams can happen over the phone, by email or through the mail. They can involve a financial institution, a government agency or even someone you love. Often, they use high pressure tactics to get people to act without thinking. For instance, they might claim that your bank account or credit card number has been compromised or that you owe taxes. They may also warn that you could be arrested or face legal penalties if you fail to make an immediate payment.
Some types of imposter scams are particularly dangerous, such as those where the fraudster poses as a friend or family member in need. These fraudsters often manage to create an emotional connection with the target by describing shared interests, belonging to similar social circles, or having compatible goals and values. They might then claim that they are in a desperate situation or need help due to an emergency. They might ask for money to pay for a debt, cover expenses while traveling or to recover from theft or stolen identity.
These scams are perpetrated by phone, email or secure messaging applications like WhatsApp. For example, individuals claiming to represent registered investment professionals have contacted some investors and offered them access to stock investments via encrypted group chats. These scams are difficult to detect as they may seem genuine. It is crucial to recognize red-flags like a promise of fictitious return, unusually high or consistent returns, inadequate documentation, and secretive methods. It is important to verify any request from an unknown person and only send money through a verified trusted channel.
Exempt Securities Fraud
The FCNB warns investors to be suspicious of private investments that are not registered with the FCNB. While legitimate private offerings may occur, many fraudsters hide behind unregistered securities dealings to execute investment scams and securities fraud. The FCNB urges investors to ask lots of questions and be cautious if approached with an unregistered investment.
Unregistered firms are notorious for hiding real business operations and locations. They may create a fake company site and even set up an office that looks real (sometimes it’s just a temporary space or post office box). Once they’ve taken your money, you may not see anything.
Scam artists also often use a false sense of urgency to pressure you to invest quickly. They may claim the opportunity is only available for a short time or that a limited number shares are available. You should not respond to any form of urgency coming from unregistered investment promoters or professionals. You should allow yourself the time to thoroughly research an investment and understand it before you give your money to a reputable investment expert.
Investment scams are often facilitated through various communication methods such as the phone, email and social media. Scammers also often target affinity groups such as veterans, seniors, religious groups and alumni associations to try to gain the trust of potential investors.
Another common scam tactic is to claim that you have insider information, or a hottip. All investments carry some risk, but fraudulent offers promise high returns at little or no risk. The SEC’s bulletin on unregistered securities fraud offers a list of ten red flags to watch for.
Securities laws, also known as “blue skies” laws, are enacted by the federal government and each state. These laws are designed to prevent baseless, speculative investments. If you are asked to falsify your income or net worth in order to be eligible for a private offer that does not need registration, do not accept the offer and contact a regulator. Be skeptical of any company that claims to be exempted from registration if it only sells small amounts of securities to accredited investors or if they claim to be selling to a limited number. The company should be in a position to prove that by providing a Private Placement Memorandum, or PPM. If the PPM is inaccurate or contains incorrect information, then it’s likely that the company has engaged in illegal activity.
Affinity Fraud
Affinity fraud refers to a type of investment scam which targets a particular group of people. This could be an ethnic group, a religious group, a career group, or a community-based group. Affinity scammers exploit the trust, friendship and loyalty that exist in groups like these to entice potential investors by using familiar names or references. These schemes often involve selling investments that have no value.
It’s crucial to know how to identify and avoid scams that involve the use of a person’s name or reputation. To help protect yourself, be skeptical of any investment opportunity that claims to be a “secret,” and always obtain information in writing.
Investors in affinity fraud schemes are often reluctant to report their losses because they want to resolve the problem within the group. It can be difficult for regulators to detect schemes because victims won’t come forward.
Affinity fraud can be especially dangerous for seniors, who may not understand the technicalities of investing in a new market. Many older investors are also reluctant to seek legal advice because of the stigma attached to being a victim.
Scammers usually start by targeting a few prominent members of the group, like community leaders or clergy. The con artists will then spread the word about the investment to other members of the group, using the early investors as references. Con artists will sometimes offer high returns in order to attract additional investors. The scheme can collapse after the fraudster runs out of other members to take money from.
If an investment sounds too good to be true, it probably is. Remember that even legitimate investments come with risks and that any return is not guaranteed. It’s also a good idea to get information in writing and consult with a professional not in the investment industry. A trusted accountant or lawyer can help you determine if an investment is right for your financial goals. You should never feel pressured into investing on the spot by anyone, whether it’s a relative or an acquaintance.
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