Preying on one of the most basic human flaws, investment scams and other get-rich-quick schemes are making up an ever larger portion of the online scammers’ cake. The number of victims, for now, is lower than the number of victims of fraudulent sales, identity fraud, and dating fraud, but the cost of investment fraud makes up almost half of all online fraud damages.

And the scammers are very much aware that a large amount of money can be made, and they are more than willing to invest in the tools that make their fraud look more trustworthy. Last week, on the 26 January, 2022, judicial and law enforcement authorities in Bulgaria, supported by Europol and Eurojust, took down a network of online investment fraudsters. The scam was exposed after complaints were made by German and Greek investors who had lost all of the deposits they had invested in the online scam. The organized crime group responsible had set up websites and several call centers that appeared to be legitimate but were actually fraudulent. 

Recognizing investment scams

We are by no means financial experts, but we have seen too many good people lose money on ponzi schemes, rug-pulls, and fake Initial Coin Offerings (ICOs), so we feel it is our job to keep you safe, and warn against these types of online investment frauds.

We realize that it is hard to tell investment scams apart from some of the more legitimate offers that are thrown at us in commercials every day. But we do want to hand you a few easy-to-follow rules to keep your money in your own hands:

  • If it sounds to good to be true, it usually isn’t true.
  • Very high return on investment rates, usually come with extremely high risks. Your money may sometimes even be better off in a casino.
  • When you are urged to act now, remember that while some legitimate opportunities want you to hurry scammers always want you to hurry.
  • If the return on investment is hardly better than what your financial advisor is offering you, is the difference really worth dealing with an unknown party?
  • Make sure to read the fine print. Understand what you are getting into.
  • Don’t get turned into a money mule or money launderer.

Types of investment fraud

The FBI lists the following types of investment fraud:

  • Advance fee fraud. The victim pays money to someone in anticipation of receiving something of greater value and then receives little or nothing in return.
  • Ponzi schemes. Ponzi schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artist pays dividends to initial investors using the funds of subsequent investors. The scheme generally ends when the operator flees with all of the proceeds or when the funds for continued payment of dividends dry up.
  • Pyramid schemes. The difference with Ponzi schemes is that in pyramid schemes the victims themselves are induced to recruit further victims through the payment of recruitment commissions.
  • Market manipulation fraud, commonly referred to as “pump and dump” schemes, this fraud creates a temporary increase in the price of a targeted security (the pump), which is rapidly sold off by the initiating party into the inflated market by the fraudsters (the dump).

There are a few other, closely related, types of investment fraud that are worth mentioning:

  • Insider knowledge trading. You may see these offered from time to time. But even if the person extending the offer really has insider knowledge, using this knowledge would be illegal.
  • Clone scams are a special type of market manipulation fraud. They are based upon selling worthless stock in a company that has the same or a very similar name as a legitimate company.
  • Boiler room scams are schemes in which salespeople use urgent cold calls as a sales tactic to persuade investors to purchase securities, including speculative and fraudulent securities.

Sources

Scammers are often experts in creating websites and advertisements that look trustworthy. The difficult step for them is to lure visitors to look at their creations. They will not limit themselves to playing the “greed” card, you can expect to see them use explicit content, raffles, and any other topic that happens to be “hot” at the time.

Investment scams are not only pushed by online media by the way. Unsolicited emails are another common method, and some scammers will text you their offerings.

Investment scam SMS
A scammer uses a google.com open redirect to disguise a phishing URL

When in doubt

As indicated earlier, judging the trustworthiness of an offer by the looks of the website is not a good idea. Most scammers are really good at designing professional looking websites. One thing you can do is enter some determining factor of the website, a typical snippet, image or (fabricated) testimonials and throw them in your favorite search engine. If you can find other websites using the same content or run by the same owners, there is a good chance there are scammers at work that have run the same scheme before.

Having a physical location you can turn to is not always conclusive, but it helps to know that you can turn to someone. It also helps if they are at least in the same country as you are. That makes it easier if lawsuits or other legal action needs to be taken.

When dealing with larger sums of money there are bound to be contracts that protect both parties. Make sure to get a copy and study it before embarking. If you are not sure about the legal content, find someone who is an expert on these matters. That right there, is a good investment because it can save you a lot of money and trouble.

Safe investing

No, we are not going to tell you what to invest in. But there are a few things you might want to avoid:

  • Rushing into an investment. Scammers want you to act urgently, so you spend less time thinking.
  • Skipping the fine print. Not knowing what it says in the fine print can turn out to be catastrophic.
  • Acting on cold calls. Treat calls, texts, mails, and other advice out the blue with extreme caution.
  • Judging a book by its cover. Investment scams are profitable and they can afford to look good.

Still not convinced? I have this piece of land on Venus, that I would be willing to part with for the right price. But you will need to act fast.

Stay safe, everyone!