Beware: Common Investment Fraud Schemes

Beware: Common Investment Fraud Schemes

As long as there have been people who have wanted to make money through investments, there have been other people waiting to deceive and fleece them of their investment capital. The modern world offers countless opportunities for investments, and it’s vital for would-be investors to know the signs of investment fraud and other schemes to avoid losing their hard-earned money. The financial world is extremely complex and difficult to navigate at times, so investors need to trust their instincts when they suspect a scheme or fraud may be in play.

Ponzi Schemes

One of the most well-known investment scams, the Ponzi scheme, earned its name from Charles Ponzi, the first person to use this scheme to great effect. Con artist Ponzi duped investors by promising very large returns on their investments in a very short time. The scheme works by paying off the earliest investors’ returns with funds from newer investors. This method isn’t sustainable and eventually collapses when the funds owed to older investors are more than the money coming in from new investors.

“Pump and Dump”

This investment scheme works by artificially inflating stock prices. Usually conducted by a small group, the schemers will invest heavily in a market before recommending the same investment to thousands of others. Once the unwary investors “pump” a huge influx of money into the market and drive up the stock price, the schemers “dump” their stocks for huge profits. The unwary investors then suffer significant losses. This method also works in reverse, sometimes called “short and distort.” Instead of inflating the price of a target stock, schemers smear the company to cause its price to fall and then make a profit by short-selling the target stock.


Some fraudsters entice investors from the United States by offering offshore investments that promise high returns. This type of scam has become more common since the advent of the internet, where international criminals can easily communicate with targets in the United States. These offshore investment opportunities are often scams and leave victims with very few options for legal recourse. Local law enforcement can’t pursue a crime across international borders, and tracking these types of transactions is very difficult. By the time victims uncover these scams, the perpetrators and the victims’ money are already gone.

False Prime Bank Notes

“Prime banks” refer to the leading financial institutions in the world. There are only about 50 true prime banks in the world, and these organizations typically trade only in high-value, low-risk commodities. Fraudsters entice unwary investors by promising investments in prime bank commodities when they simply pocket investors’ cash and disappear.

Protect Yourself

These are just a few of the possible types of schemes investment fraudsters use to take advantage of others. If you aren’t sure of an investment opportunity, trust your instincts. If something seems too good to be true, it probably is, so take the time to carefully vet any financial advisors you consider hiring. It’s also wise to verify any financial professional’s qualifications and history before agreeing to working with them. Many investment professionals are good at what they do and genuinely want to help their clients make more money, but some are in it solely for personal profit and care little about their clients’ success. Trust your gut when you are looking for someone to help manage your investments, and only agree to a financial professional’s services if you are confident in their honesty and competence.