Spotting and Avoiding 7 Popular Investment Scams

  • By: mvadmin
  • Date: June 2, 2022
  • Time to read: 4 min.

You work hard for your money, and the last thing you want is to be victimized by a con artist or financial scammer.

Investment scams can come out of the blue. Usually, they are just what they sound like, and you are convinced to deposit money in what is shown to be a smart investment which in reality doesn’t exist.

Here are seven investment scams you should know about and stay far away from:

Advance fee scheme

This is a widely seen scam; the victim is convinced to invest in an offer that promises a lucrative return. The scammer takes the investment and vanishes, never to be seen again. These scams rely on victims paying up large sums of money in advance. The scammers suggest that the offer is valid only for a short duration and will not be available later.

Exempt securities scam

Exempt securities may be sold without a prospectus but are limited to accredited investors or certain other conditions. This makes for a very believable fraud, and scammers pitch fraudulent investments as ‘exempt’ securities. In reality, not all exempt securities are scams, but it is imperative to be highly vigilant if offered exempt security. The scammer may present the investment as only available to wealthy people and may make you misrepresent your net worth, don’t fall prey to this.

Forex scam

Trading in foreign exchange is seen as a risky trade, and the forex market is considered the world’s largest and most liquid financial market. This scam can take advantage of the lack of information people possess about the forex trade and lure victims into investing in the scam. Some forex trading schemes may be illegal; they may take your money and not invest it where they claim to. Be alert if you are asked to wire money into an offshore account before you can start forex trading. As a general rule for all types of investments, do not send your money into offshore accounts, even if they claim that is the only way to invest.

Offshore investing scam

Offshore investing is a term that should put you on high alert to know that the investment could be fake. Do not fall for tax avoidance schemes even if they promise huge profits. Remember that if something sounds too good to be true, it means something is not right. Also, remember that if you send your money to another country in ‘offshore investing’, you cannot sue the person in a court in Canada, making it impossible to recover your money.

Pension scam

The word pension can bring a comfortable old age to your mind, but beware of pension scams. These scams target people who have their retirement savings in a Locked-In Retirement Account. The scam promises to sanction a special “RRSP loan” that lets you get around the tax laws and tap into your locked-in funds. To avail of the loan, you would have to sell the investments you hold in your retirement account and use the money to buy shares of a startup company they suggest. The scammer promises to loan you back part of the money you invested while they keep the rest as a fee. You may be told you will receive the amount as cash and will have to pay no tax on it all while holding a valuable investment in your retirement account. But the stake in the supposed startup company could be worthless, and the loan you were promised will not arrive either. In short, you lose your retirement savings. These scams are sometimes promoted in newspaper advertisements. Stay far away from them.

Ponzi or pyramid scheme

Ponzi or pyramid schemes are gaining more popularity, but people are now becoming wiser too. The scams recruit people through advertisements, emails and word of mouth and promise to help people make massive money from working at home or making a special investment. Do not fall for these schemes even if the person inducting you is something you know and trust. They, too, are victims and don’t realize this is a scam. The scammers could even pay you an initial “return” to make the scam appear more realistic and then get you to invest more money. These returns are paid out when new people join the scheme, and eventually, when the fraud runs its course, the scammers vanish with everything they made.

Pump and dump scam

This is a stock market-related scam where scammers contact potential investors to promote what seems to be an incredible deal on a low priced stock. In reality, the scammer holds large amounts of this stock, and as more investors buy this stock, the value rises. Once the stock prices peak, the scammer sells his stock and vanishes. You are left with a pile of worthless stock and think you just made a bad judgment when you were scammed.

Photo by JACK REDGATE from Pexels