Investment Scams

  • May 30, 2017
  • By: Greenpath Financial Wellness

Investment scams or fraud can do some serious damage to your finances.  But there are some common tactics used by fraudsters that you can spot and avoid.

Con artists tend to move fast when it comes to creating new pitches for the latest fraud. The most common frauds tend to fall into the following general schemes:

Pyramid Schemes

In this scheme, scammers claim they can turn a small investment into large profits in a short amount of time.  But people make money solely by bringing new people into the program.  The scammers often go to great lengths to make their programs appear to be legit.  Pyramid schemes fall apart when it becomes impossible to recruit new participants.

Ponzi Schemes

A Ponzi scheme is a scam where victims are coerced into investing in an entity that doesn’t exist. Con artists recruit people into their scam by promising they will get rich quick by putting money into a promising business or investment.  However, this money isn’t invested or managed as promised.  Instead, it ends up going to the fraudsters or to early investors to create an illusion of company growth. These schemes keep going until there aren’t enough new investors or until enough of the victims ask for their money back.


In a pump-and-dump scam, a con buys low-priced stock shares of a small, thinly traded company.  Then they spread false information to increase its stock price.  This causes people to believe they are getting a good deal on a promising stock, and they buy it at a higher price.  The con then dumps their shares, leaving many people stuck with overvalued stock.  Be wary of spam emails or text messages promoting low-priced stocks.

Advance Fee Fraud

This scam begins with an offer to pay you a high price for worthless stock in your portfolio.  But, in order to sell the stock, you must pay a fee. Once you pay the fee, the con disappears and you never get the money.

Here Are Some Tips for Spotting a Scam:

  • Don’t believe anyone who claims that there is no  risk. There is always risk in investments, and no one but a con artist will tell you otherwise.
  • Beware of promises that you’ll make big profits fast.  No one can predict how an investment will perform.  Often the investments that promise the highest pay off often have the highest risk.
  • Get everything in writing.  Legitimate companies will be happy to give you all the information you need.
  • Don’t agree to anything on the spot.  Pressure to act immediately is a danger sign of fraud.
  • Don’t act on testimonials from strangers.  Someone who appears to want to share a friendly tip about a great investment opportunity may actually be a con artist trying to lure you into an investment scam.
  • Be especially wary of investments that promise rising prices of coins, precious metals, artwork, oil leases, gemstones and other commodities. The truth is that the value of these types of investments can go up or down significantly.
  • Be extra cautious about emails asking for money or offering investment opportunities.  Many unsolicited emails are fraudulent.
  • Take the time to check out investment offers.  A good place to start is with your state securities regulator.  Another resource is the federal Securities and Exchange Commission.