Investment Fraud In Depth

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In the USA, almost 70% of households own some type of investment. Unfortunately, around 1 in 10 of the people who own investments will likely be duped into losing them. In other words, they will fall victim to a white-collar crime known as investment fraud.

So, if you want to keep your investments safe, you first need to know what investment fraud is. This article will focus on different types of fraud, as well as various ways to deal with them. 

What Is Investment Fraud?   

Also known as securities fraud, this type of crime is incredibly prevalent all over the world. Typically, a scammer would provide misleading or incorrect information to investors. Said investors then make purchase decisions and lose all of their assets, which end up in the scammers’ pockets. 

Of course, investment fraud is nothing new. However, with the advent of the internet, scammers have “diversified” their schemes. And the worst part is that they have become incredibly elaborate. A scammer can hire professional investment advisors to make their fraud appear legitimate. In addition, anybody can be in on the fraud, including your closest friends and family. In other words, anyone with a computer and a decent internet connection can scam you out of your 401(k).

Popular Types of Investment Fraud 

Ponzi Scheme/Pyramid Scheme 

A Ponzi scheme is one of the most common types of securities fraud. Usually, a scammer would lure investors with fake assets and pay them off with funds from recent investors. The most famous case of this type of investment pyramid scheme involved Bernie Madoff, a former non-executive NASDAQ chairman. His fraud was estimated to be worth a staggering $64.8 billion in November 2008. 

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Internet and Social Media Fraud

Modern scammers use the internet as a tool to disseminate false investment information. In the early days, they would frequent forums, chatrooms, and message boards in order to promote shady investment offers or provide trading tips. Since the early 2010s, this activity has moved to social media, including Instagram, Twitter, Facebook, and other platforms. 

Microcap Fraud 

Often, a scammer will promote microcap stocks, manipulating their prices and spreading false information. Generally speaking, these are stocks of small companies and public information about them is scarce. Many of them are the so-called penny stocks, which you can trade for less than $5 per share. 

Pump and Dump Schemes

A typical pump and dump scheme involves two parts. First, the fraudster boosts the price of the stock artificially. More often than not, they do it by spreading false info about the company. The second part comes after the stock prices were pumped up. The promoter then sells off their stock holdings and makes a profit while dumping the shares into the market. The price of the stock then falls, and all other investors lose money. 

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Cryptocurrency Investments

Cryptocurrency is incredibly popular nowadays. As a result of that popularity, scammers have been creating various cryptocurrency-related scams to lure potential investors. Moreover, this field of investment doesn’t have the most clean-cut federal regulation. In other words, you’re extremely likely to be a victim of fraud if you invest in a shady crypto-project. 

Who Can Become the Victim of Securities Fraud?

Broadly speaking, anyone can be duped into poor investments. However, you’re more likely to become a victim if you:

  • Accept trade offers you did not solicit
  • Trade from your home over the phone or computer
  • Prefer investments with little or no regulation
  • Expect to get rich quickly
  • Trade more often than regular traders

How to Spot a Fraud?

Pay close attention to the investment offer and the person or company making it.

  • Is the person anonymous, and did they contact you out of the blue?
  • Do they use phrases like “Huge upside!”, “No risks!”, “Incredible gains!”, etc.?
  • Is the offer offshore and outside of your country?
  • Does the caller pressure you to invest immediately?
  • Does the caller claim to represent FINRA or any other investment firm while staying anonymous?


If the answer is “yes” to any of those questions, you are most likely dealing with a scam.

The Dos and Don’ts of Investment

What You Should Avoid Doing:

  • Never make an investment thinking you will get rich. A scammer can spot this behavior and manipulate you into investing.
  • Pay attention to where the investment info was posted. If the poster is anonymous and spreads “top secret insider information” on social media, be wary. They are probably a scammer.
  • Don’t let a pretty-looking website fool you. Nowadays, it’s incredibly easy for anyone to make a professional-looking webpage. 
  • Never, under any circumstances, make any investments based on TV adverts, online ads, or unsolicited emails. More often than not, these are Ponzi schemes. 

What You Should Always Do:

  • Do a background check on the investment firm or the individual who sent you the offer. Make sure that they are a professional with years of experience. There are various databases that can help you with the search. 
  • Ask plenty of questions that can tell you if the person behind the offer is legitimate. For example, questions like “How does the company make money?”, “What are the fees?” and “What are some of the factors that can affect the growth of the investment?” are a good start.
  • Always have an exit strategy in case the caller is persistent.
  • Be careful of free investment seminars that offer lodging, lunch, or anything else. More often than not, scammers are the ones who organize them.
  • Hire an investment fraud attorney. At some point, even the most careful traders get scammed. However, with the right investment fraud lawyer, you can get most, if not all of your assets back. 

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