Examples of investment fraud
Investment fraud can take many forms, but each instance comes back to the common thread of individuals trying to swindle you out of your money by promising something they can’t deliver. The website of New York Attorney General Letitia James lists nearly two dozen types of common investment scams, ranging from predatory lending to pyramid schemes. In essence, if there is a way to invest your money, it’s likely been appropriated by scammers for the purpose of committing fraud.
As technology, finance, and the internet grow in unique ways, so too grows the variety of investment scams. A more recent example is non-fungible tokens, or NFTs, which have become a target for scammers looking to defraud investors. In one case from 2022, two defendants were charged with committing $1 million in fraud relating to the sale of NFTs. Daniel B. Brubaker, the acting special agent in charge of the case on behalf of the United States Postal Inspection Service, noted the rising popularity of cryptocurrencies has also created new opportunities for scammers looking to execute fraud.
The red flags of investment fraud
For as many different avenues as scammers have to commit investment fraud, there is an abundance of red flags to tip consumers off that something is amiss. The Financial Industry Regulatory Authority suggests one of the earliest warning signs is working with a supposed investment professional who pressures you into making a rash decision or takes an aggressive tack. FINRA notes even if the individual isn’t connected to a scam, it’s a sign of unprofessionalism.
The Commodity Futures Trading Commission also points to guarantees as a sure sign of a scam. An investment professional cannot guarantee an investment will perform a certain way, and making promises in that regard suggest the investment is, in fact, too good to be true. The same can be said if the person selling you on an investment promises little or no risk. Risk is a part of investing, and it’s something an investment professional will acknowledge.
Someone looking to commit investment fraud will also likely build their pitch around inflated or even false credentials and testimonials. Per Investor.gov, the website of the U.S. Securities and Exchange Commission, fraudsters will try to sell you using over-the-top pitches. They may also attempt to pressure you by appealing to the success of others who have invested with them, going as far as to offer the stories of investors who do not even exist.
How to protect yourself against fraud
Even if a scammer is practiced enough that their pitch seems passable on the surface, their scheme falls apart when you take certain actions. One of the most effective is to say you need time to consider a proposal. If the individual pressures you against walking away from the conversation, even going as far as to pull the offer, it is almost certainly a scam. The same is true if the person speaking with you won’t offer written documents to verify their credibility or outline the process for warranties or refunds.
The reason for this is that even a moderate amount of investigation should turn up the illegitimacy of the investment. The CFTC, SEC, and FINRA all offer tools on their respective websites that help you make an informed decision. Investor.gov lets you perform background checks on investment professionals, and you can report suspicious individuals and organizations to the CFTC’s Division of Enforcement.
If you’re presented with an investment opportunity that poses no risks and guaranteed rewards, you’re likely being targeted by a scammer. By asking questions, being assertive, and doing your research, you can protect yourself against investment fraud and take action that will help stop scammers from harming others.