Trader logo

10 Signs of Investment Fraud Everyone Should Know

These are some telltale signs of investment fraud that, if spotted, could save you a ton of money.

By Fred Eugene ParkPublished 6 years ago 7 min read

In an age where we are less than a decade removed from a global financial crisis that crippled the assets of a whole generation of people and businesses, there is a great deal of skepticism that many people take into investment and personal finance. While there are obvious signs of predatory investments and financial scam artists that have come to be highly recognizable and ubiquitous (i.e. Nigerian prince scams, Madoff style Ponzi schemes, check fraudsters, and the like), there are also far more subtle indications of fraudulent investments that everyone ought to look out for. If any one opportunity makes sensational claims like a 100 percent return on your investment, you can bet that this is damn near impossible. With the proper warning signs of investment fraud available, you will be able to spot these creeps, and only engage in investments with legitimacy and realistically estimated returns.

There is no such thing as a free lunch.

As cliched and oft repeated as this old saying may be, it is of critical importance when considering the validity of a prospective investment. If something seems too good to be true, trust that instinct. As Billy Preston so eloquently put it, “nothing from nothing ain’t nothing.” As previously stated, it is exceedingly rare that a 100 percent return can be made off of an investment. Accordingly, no legitimate offer will make such sensational claims respecting their returns. In this way, cases like the Bernie Madoff scandal served to show the foolishness of believing such claims with the collapse of the elaborate Ponzi scheme that managed to ensnare many innocent people. If you find someone claiming 100 percent returns as a given, this investment is to be avoided, lest you be divested of money by a con artist.

Steer clear of any guarantees.

Photo by rawpixel on Unsplash

Adding to the first point on suspect claims of high return, it is important to note that any investment opportunities stating a specific return as definitive, you should stay far away from it. Legitimate investment opportunities will not make guarantees to their shareholders, as these are unverifiable. Because it is impossible to foresee and account for all of the variables that inform and affect the modern global economy, it is quite simply impossible to guarantee anything at all, especially returns on investments. As such, no one individual or group of individuals can claim to have an absolute certainty on the returns that they will make on any investment or capital venture. There are simply too many variables for any of us to conceive of in our, inherently, limited scope of the market.

Stay away from "unique opportunities."

If an investment opportunity was truly effective, it would not be unique. Anyone claiming that they have some such opportunity or new types of investment is more than likely a huckster and not to be trusted. Though more subtle than the infamous Nigerian prince scams or other internet scams that prey on the gullible, these types of fraud are equally harmful, as they are more insidious. It is best to look out for rhetoric disguised by fancy, faux-important vocabulary. Such terms to look out for include "private placements," and "prime lending certificates." These spicy, lofty sounding terms actually mean absolutely nothing, and are often used to compel the uninformed and naïve investor. If you come across terms that you are not familiar with, start by researching the terms in question before putting down your money.

Avoid self-proclaimed "new" or "revolutionary" business models.

Photo by NeONBRAND on Unsplash

Any new or unheard of companies with sensational claims of new and revolutionary technologies are very suspect. If you have been told by any persons or companies that you can get in on the ground floor of a startup, chances are they are not fully on the up-and-up. Just because a company claims to hold revolutionary patents that will innovate technology doesn't mean that this is true, or that their product or concept actually exists. If this really was such a phenomenal and groundbreaking company, you would expect some eminent and well-off investors to hold shares with them and/or sing their praises, and perhaps some knowledge by the general public of their endeavors. If you are faced with a company that claims to be revolutionizing anything that has not caught the attention of the wealth of the world, you may want to wait to see if their technology is actually legitimate before doing business.

Be skeptical of a "referral" from someone you know.

Perhaps you have heard this one before: A friend approaches you with an incredible investment advice or opportunity that you need to get a piece of. More often than that, these “incredible” opportunities are often just that, lacking in credibility. These ploys smell of pyramid schemes and self-serving scam artists who prey on equally unethical and impressionable people to mislead, both wittingly and unwittingly, successive waves of victims. In such scams, the perpetrator will stock the lake with fish by paying off the early rounds of people involved in them as that the next group of people rope in their friends to provide even further fraudulent income for their enterprise. The scammer relies on gullible victims believing that the friends who brought them into this mess received their promised returns as assured by the scammer. The scammer will eventually abscond with the money that the impressionable victims have handed them, leaving you at a loss if you invest, both financially and figuratively. Don't blindly trust investment advice from anyone who is not a reputable investment professional.

Avoid claims of supposed "urgency."

Photo by Liam Seskis on Unsplash

Beware of any prospective investment that is claiming to be urgent, as this is a major red flag. These frantic sales pitches are sure signs of investment scams. To put it simply, real, lucrative investments do not have to stress urgency and evangelize to potential investors in order to be effective. Discount anyone making claims of "limited time offers" or uses the word urgent. These scams will stress that time is of the essence in order to intimidate the victim into blindly putting their faith and funds into the scam without providing any legitimate investment information. If you were to bother to read into such a scam (though these are pretty easy to weed out and discard promptly), you would find that their claims are unfounded and the information that is provided is simply rhetoric masquerading as facts and statistics. Avoid anyone who uses these or other scare tactics to enlist victims.

If money is thrown into one big account with others, stay clear.

If you find that your investment has been pooled with others who have paid into the supposed investment, you should know that you have fallen for a relatively weak and poorly veiled scam. In a legitimate investment scenario, your money will be deposited into its own distinct account, which is to be controlled by a third party rather than the investment advisers. If your scammer is simply putting all the money in one lump account, they are not trying very hard to conceal their questionable practices. Accordingly, you should receive regular updates on your funds and progress. If you find that any of these basic requirements are coming into question, it is best to steer clear and save your money for a reputable investment opportunity.

Conspiracy theories and fear tactics are huge red flags.

Photo by Christian Bardenhorst on Unsplash

If a potential investment pitch uses language that is reminiscent of Alex Jones or other fear-based conspiracy preachers, you need to run away, and fast! With many people experiencing a great deal of fear and uncertainty of the future and the state of the world, it is easy to imagine financial scammers trying to capitalize on the fervor of conspiracies and blatant misinformation that has potentially primed a whole new market for them. Displaying such impressionability and anxiety, conspiracy believers are prone to make preparations for perceived disasters and doomsdays spoken of with the abundance of media platforms available. These scams are pretty blatant and can be discounted with research and, quite frankly, common sense. Any time you see these signs, just do your homework if you are still unsure.

Do not buy into unregistered investment opportunities.

This is something you should do before even digging deeper, as it is absolutely indispensable. Basic research will tell you that any legitimate investment company must be registered with the Securities Exchange Commission (SEC) or another relevant government securities regulator. Any legitimate investment exchange must be overseen by the government in some respect, to combat fraud and theft in the industry. If they are not, you can absolutely discount and ignore them, as they are trying to pull a fast one. Though this regulation is not a sure sign that the investment is legitimate, it will at least protect you somewhat in the event that you have been hoodwinked by a scam. Without such registration, you will have little to no success seeking compensation for your losses.

Avoid obviously suspicious and foolish advice.

Photo by rawpixel on Unsplash

As you have probably heard, it is important to diversify your portfolio, rather than place all of your faith in a single institution or investment. If someone suggests that you trust all of your assets, securities, and such to them, they are scamming you and you should not engage them. One of the ways to reduce the chances of being victimized by investment fraud is to never allow anyone to convince you to take out loans, cash in your retirement funds, or put yourself at any other dangerous financial risk in order to buy and sell securities; this is one of the biggest signs of investment fraud there is. As it takes money to make money, you should never spend money that you don't have for investment purposes. In the very likely event that these loans or cash-ins don't offer the desired return, you will be far worse off than you were at the start. It is better to abstain from such a risk and earn nothing than to fail and lose even more. Any time you are asked to do something that seems like an inherently foolish move, trust your gut and move on.


About the Creator

Fred Eugene Park

Fred Park is a writer, singer and guitarist with a deep passion for music, sports and history. Fred graduated from Purchase College in 2016 with a BA in history.

Enjoyed the story?
Support the Creator.

Subscribe for free to receive all their stories in your feed. You could also pledge your support or give them a one-off tip, letting them know you appreciate their work.

Subscribe For Free

Reader insights

Be the first to share your insights about this piece.

How does it work?

Add your insights


There are no comments for this story

Be the first to respond and start the conversation.

    Fred Eugene ParkWritten by Fred Eugene Park

    Find us on social media

    Miscellaneous links

    • Explore
    • Contact
    • Privacy Policy
    • Terms of Use
    • Support

    © 2024 Creatd, Inc. All Rights Reserved.