Financial fraud causes significant monetary loss and can damage a person’s reputation to the point that it prevents them from borrowing money in the future. While there are several fraud classifications, investment scams remain the top impactors.
These scams occur every day, and they appear in several different ways. Additionally, through the advancement of technology, investment scams can run their course with complete autonomy.
The most proactive way to protect your online data is to learn how to recognize common fraud tactics.
Would you be able to spot a scam if you were involved in one? Continue reading to find out.
Types of investment scams
According to the Federal Trade Commission, consumers reported losing more than $4.6 billion to investment scams last year. Even worse, the number continues to rise, with the highest median loss equaling about $7,000 per incident. Below are three common types and how they function:
Pyramid schemes
A pyramid scheme is a fraudulent business model that makes money by recruiting new members. Each member is obligated to invest and recruit more members. Tenured members at the top of the “pyramid” rely on the profits from their recruits as a method to pay dues. Many victims of this scam cannot meet the required demands and are forced to pay out of pocket to keep their membership.
Investment training scams
This type of scam promises to teach applicants about lucrative ways to invest in the financial market. It often uses words like life-changing or revolutionary. After attending a seminar held by the scammer, the investor is asked to demonstrate their new knowledge by providing money to be subsidized into the opportunities they just learned about. In actuality, the money is used for other purposes, while the scammer pretends the market is unfavorable, resulting in a loss of funds to the investor.
While all investments have risks, these training seminars are considered illegal scams when conducted by unlicensed fraudsters. Additionally, they break the law by guaranteeing high returns without clearly disclosing the associated risks.
Real estate investment scams
Perception is the primary driver of a real estate investment scam. It revolves around the once-in-a-lifetime chance to invest early in a new property development. Scammers sometimes advertise these factious opportunities on billboards and newspapers, making it hard to identify them as fake. The investor is convinced to lend money to an agency to finish property development and receives the promise of a high return once the property sells.
After the money is exchanged, the project is abandoned, and the investor is unable to contact the developing agency. Further, the investor was never included on any property records, making it a total loss.
Common scam indicators
All scams usually carry similar red flags. Typical indicators include:
1. They pressure you to act immediately
Scammers put a lot of pressure on victim investors to provide money quickly. By rushing the investor, the scammer doesn’t have to put much effort into the transaction, and they can work on finding their next victim. Getting the victim to buy into an investment quickly also leaves little time for the victim to realize they are being scammed.
2. You must pay them first
Many scams start by asking you to pay money upfront to receive a prize, gift, or offer of employment. Please note that these offerings differ from purchasing a legitimate good or service. Before paying money to an unknown source, consider what you will receive in return and if the process is normal.
3. They ask for sensitive information that’s irrelevant to the transaction
Fraudsters will steal any personal data that they can. Before doing business, ensure the information you provide is relevant to the transaction. It includes being cautious about sharing sensitive information such as your social security number, bank account details, or any other confidential data. Always verify the legitimacy of the individual or organization requesting your information to protect yourself from potential scams or identity theft.
Stay proactive, stay informed!
Achieva Credit Union has created a page to keep you up to date about fraud and security awareness. Visit it today to get detailed information about scams and ways to report them.
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