Top 9 investment scams
Dear Traders,
Have you ever seen someone that made you an investment offer that sounds too good to be true?
Then it probably is.
Investment scams can take many forms and often include fraudsters that usually develop great sales pitches.
The traps
More often than not, most common securities frauds tend to fall into the following general schemes.
Ponzi schemes
Ponzi schemes have been notorious for stealing more money than any other type of scams.
It's because early investors receive payment from their referrals.
These referrals happen to be friends, families and associates who usually trusts the referee.
The conman eventually disappears with the money.
The whole system collapses with most of the investors receiving nothing - not even their original investments.
Pyramid
In a typical pyramid scheme, you need to pay up to join.
A pyramid scheme relies on you recruiting new members and convincing them to part with their money as well.
If everyone in the scheme wants to make a profit, there needs to be an endless supply of new members.
Of course, this is never the case.
The only people who receive any money from this scheme stand atop the pyramid.
Some pyramid scheme promoters disguise their true goal by introducing products that are of low quality, overpriced or have little value.
Pump and dump
False or misleading statements that aim to increase stock prices and then sell it to the public is called pump and dump scheme.
In the past, these scams typically involved operators who cold-called investors like in the movie, " The Wolf of Wall Street".
Advance fee
The advance fee swindlers promise to obtain a loan for you, usually from a legitimate financial institution.
In reality, they can't secure a loan for you.
First, they would stall with various excuses as to why your loan has not been funded yet.
Then, they would disappear with your fee in their pocket and keep preying on other victims.
False statements
This is specifically true for the Forex market.
Many swindlers will use false statements.
These statements are from other people and they will show it as their own.
Forex swindlers who generate fake statements use various platforms to advertise and build up profit hallucinations.
One example is, gambling houses are able to lead people to believe that they can win - even when the odds are severely against them.
False promises
Novice traders think there are shortcuts to riches.
Swindlers use this to their advantage by promising huge returns.
Sales people would try to get you into Forex trading by implying that you can make 20% (or similar ROI) each month consistently.
Another example includes traders who allegedly manipulate investors, promising huge returns like Alex Hope did.
Forex robots
Forex robots are automated systems that enter trade orders instead of a trader.
They are programmed to generate returns by applying mathematical rules decided by their creators.
Personally, I don't place a lot of faith in robots.
I always trade manually and I've had a good success with it.
It's true that Forex robots do not give into emotions, but they rely on technical maintenance.
However, if your local ISP has any issues or there's a blackout:
...Forex robots could wipe out your account.
Similarly, if spreads of your own broker starts to widen, even the best automated robots will be rendered useless.
Affinity fraud
Affinity fraud is made when a con artist targets groups of people we know like family, coworkers and colleagues.
This scam is well known to take place in a family or group setting and it is very difficult for authorities to uncover it.
People simply don't want to lose their money, nor do they want to report one of their own to authorities.
Instead, they try to work things out as a group, warning the con artist that it is time to wrap up the scheme and move on to next one.
Top 3 investment scammers
Below is a list of top 3 scammers who ruined many lives by using different schemes.
These frauds serve as a reminder that no trader can escape justice.
Charles Ponzi
- Firm: Securities Exchange Company.
- Loss: Estimated 20$ million.
- Sentence: 5 years.
- Scam: Pyramid scheme.
The expression "Ponzi scheme" has been named after Charles Ponzi's renowned fraudulent business model.
Ponzi was promising returns of 50% in 45 days and in reality, it was paid by assets of new investors.
In 1920, the scheme failed, leaving 5 banks and all investors in financial ruin.
Charles Ponzi made $20 million through his pyramid scheme, which equals to $222 million (adjusted by inflation) in 2011.
Sam Israel III
- Firm: Bayou Hedge Fund Group.
- Loss: $350 million.
- Sentence: 20 years and fined $200 million.
- Scam: Guaranteed unrealistic returns.
Israel kept promising his investors that their $300 million investment would turn into $7.1 billion within 10 years.
During 1998, the returns were lower than he had promised:
...Israel created fraudulent accounting reports…
...to give the illusion that their investments were growing.
He escaped authorities and was only found after appearing on America's Most Wanted.
Jordan Belfort
- Firm: Stratton Oakmont.
- Loss: $200 million.
- Sentence: 22 months and ordered to pay $100 million.
- Scam: Pump-and-dump scheme.
The famous movie The Wolf of Wall Street, was based on actual events that happened in the 90's.
Stratton Oakmont was a pump-and-dump firm where:
- brokers would spike the stock price up; while
- Belfort and his partners would cash out; causing
- the stock to skyrocket in value.
He hired hundreds of brokers to cold call unsuspecting people to sell stocks worth nothing.
Losses happen and scammers are easy to avoid
As a trader you should not be afraid of losses.
Losses are simply a normal part of your trading career.
Keep it under control and you should be fine.
By following a correct trading routine and money management rules, your account should be safe.
Furthermore, if you visit our free webinars, we can make sure you have the proper mindset of a trader.
As for scammers, they are easy to avoid.
Watch the video below where I explain how to avoid frauds in Forex market.
Have you ever been scammed by an investment fraudster?
Let us know in the comments section below.
Cheers and safe trading,
Nenad
