There are many scams out there that claim to offer investment opportunities, but are actually nothing more than schemes to steal your money. These “investment imposter” scams come in many different forms, but all have one thing in common. They promise high returns with little or no risk. They may ask you to invest in something that doesn’t even exist, or they may use high-pressure sales tactics to get you to invest before you have a chance to think about it.
Different Types of investment Scams
A Ponzi scheme is a type of investment fraud that promises high returns with little or no risk. The scheme gets its name from Charles Ponzi, who became famous for using it in the early 1920s. In a Ponzi scheme, investors are promised high returns when they invest in a new company or venture. However, instead of making money from the investment, the promoters of the scheme use the money from new investors to pay off the earlier investors. This makes it appear as if the investment is profitable, when in reality it is not. Eventually, the scheme collapses when there is not enough money to pay all of the investors.
Like a Ponzi scheme, pyramid schemes get their name from the way they are structured. In a pyramid scheme, old investors recruit new investors. This creates a pyramid-like structure, with each new investor making the scheme larger and more unstable. Eventually, the scheme collapses when there is not enough money to pay all of the investors.
‘Limited Time Offer’ Scam
Many times, investment fraudsters will use high-pressure sales tactics to get you to invest before you have a chance to think about it. They may tell you that the investment is only available for a limited time and that you need to act now. They may also tell you that the investment is risk-free or that you will make a lot of money. Be wary of any investment opportunity that seems too good to be true, and never invest in something without doing your research first.
Common Characteristics of Investment Scams
Although there different types of investment scams, they all typically have the same characteristics and use the same tactics, such as:
- Promises of high returns with little or no risk. Be very wary of any investment that promises above-average returns with little or no risk. If it sounds too good to be true, it probably is.
- Pressure to buy now. Scammers will often try to pressure you into making a decision on the spot, before you have time to think it over or do your research. They may say that the opportunity is only available for a limited time, or that they need your money right away to take advantage of a hot stock tip.
- Insistent you pay in cash. Scammers often insist you pay in cash, rather than by check or credit card. This is so that they can get your money before you realize that they scammed you.
- Refusal to provide written information. A legitimate investment will always be accompanied by written materials, such as a prospectus, that explain the risks and potential rewards of the investment. If the person trying to sell you an investment refuses to provide written information, that’s a red flag.
- Vague or misleading information. Be suspicious of any investment that seems vague or overly complicated. Scammers will often try to confuse you with technical jargon in order to hide the fact that they don’t really know what they’re talking about.
Immediate Action Steps
If you think someone scammed you, follow these immediate action steps:
- Contact your local law enforcement or the Securities and Exchange Commission.
- If you provided the scammer with financial information, like a bank account or credit card number, get in contact with your bank or credit card provider right away. They may be able to help you stop the transaction.
- If you paid using gift cards or wire transfer, call the issuer and see if they can help you stop the transaction from going through.
- If you provided personal information, keep an eye on your credit report and financial accounts for any unusual activity.
Report an Investment Scam
Although you may not be able to get your money back, it is imperative that you report an investment imposter scam to help others avoid being scammed. As a society, the more people that report online scams, the more national reporting data that is collected. With more data, law enforcement has a better chance to catch the criminals and decrease cybercrime.
Report investment imposter scams to the Internet Crime Complaint Center (IC3) at IC3.org. The IC3 will review your report and refer it to the appropriate federal, state, local and international agencies if necessary.
Avoid Future Investment Scams
If you’re approached about an investment that seems too good to be true, take the time to do your research. Talk to someone you trust before making any decisions. Remember, if it sounds too good to be true, it probably is. If you’re thinking about investing in something, be cautious and do your homework. Be sure to check out the company or individual behind the investment opportunity. Don’t give any money until you’re confident that it’s a legitimate offer.
Discover more resources to recognize, report and recover on our investment scams page.