Investment fraud
Investment fraudsters lie to investors about deals to get money from them. Such scams often include offers for investment opportunities that are low- to no-risk with a guaranteed return, never-before-seen strategies, loopholes, or unregistered securities.
Investment fraud simplified
You may receive an amazing investment offer from a person with whom you are connected on social networks, but don’t know in person. Often fraudsters seek to victimize affinity groups—such as groups with a common religion or ethnicity—to utilize common interests to build trust to effectively execute investment fraud against them. The fraudster’s ability to foster trust makes these schemes so successful.
Types of investment fraud
Pyramid schemes
A pyramid scheme is when a scammer claims he can turn your small investment into a large profit fast. What sets a pyramid scheme apart is that the fraudsters keep attracting investors without offering a product or service. The initial investors get paid with the money that new investors bring. This scheme continues on until the fraudsters can’t pay their investors anymore or attract new ones.
Pump-and-dump
Pump-and-dump involves scammers who buy shares of small companies for a very low price. They then spread false information that this company is a good investment opportunity to inflate their stock prices. Once the stock prices go up, the fraudsters sell the stocks they bought for low prices at a profit and abandon the scam.
Advance fee
Advance fee, like the Nigerian prince scam, is when scammers ask people for money, promising to return more at a later date but never do. Such scams often include fake stories and false investment opportunities like “wire me $400 dollars for plane tickets and I’ll pay you $2,000 when I return.”
Offshore scams
Offshore scams often target US investors and can be carried out via any other type of investment fraud. The idea here is that the US law enforcement has difficulty investigating fraud outside of the US. Fraudsters know this and target US investors with investment frauds.
Tips to prevent investment fraud
Be inquisitive
Ask about full terms and conditions of the deal or how the business is going to work. If the person sounds sketchy or keeps avoiding your questions, there’s likely something going on.
Do your research
Background check the person or agency and make sure they are legit. Look up their name, reputation, and affiliations. Does it makes sense that they’re contacting you?
Remain skeptical
If it sounds too good to be true, then it probably is. Be extra cautious, especially when the deal comes to you without any context, faces, or official companies behind it.
Investment fraud stats
According to the FBI Internet Crime Reports, here's how devastating investment frauds were from 2015 to 2022:
Average losses and victim count
year over year
Investment fraud cases have reached record numbers with 30.5K yearly victims (around 84 victims per day) in 2022.
Victims have reported the highest average financial loss to investment frauds in 2022 ($108.5K per victim).
During the 2020 COVID-19 pandemic, the number of investment fraud cases grew by 120%, but the average financial loss fell by 31% (from $55.6K to $38.3K) per victim compared to 2019.
Despite the increasing awareness of online crimes, daily financial losses to investment frauds have grown around twenty eight times from 2015 ($326.5K per day) to 2022 ($9.1M per day).
