6 common investment scams to watch out for

Investing can be one of the most lucrative choices you can make for yourself and your future, but it comes with many risks, particularly the risks associated with investment scams. Technology is advancing, and so are the ways and methods employed by fraudsters to deceive investors and individuals, young or old, who might be new to the investment game.

In this article, we’ll look into six of the most common investment scams and explore what seem to be the next emerging threats that have surfaced in the last few years.

Ponzi schemes

What is a Ponzi scheme? To put it simply a Ponzi scheme is a type of scam where an investor (let’s say you) is paid using money coming from a new investor, rather than profits generated by the operation both you and the new investor invested in. The scheme leads people to believe that profits are coming from a legitimate business activity. In reality, these schemes are houses of cards that will ultimately collapse, once the flow of new investors and investments slows down or stops.

The term itself, “Ponzi scheme” originated from Charles Ponzi, who famously exploited this investment method in the 20th century. You might remember a Simpsons episode, “The Springfield Connection”, in which the show humorously addressed the topic of pyramid schemes by having Marce unwittingly become involved in a real estate scheme reminiscent of a Ponzi scheme.

Binary options scam

A Binary options scam usually involves deceptive practices in the financial market, especially within the realm of binary option trading. Scammers dedicated to this form of scam target individuals and companies and lure investors with the promises of high returns on their investments by betting on the price of movements of various assets such as stock, currencies or commodities.

How does it work exactly? This kind of scam typically unfolds on online trading platforms. Investors and users are encouraged to make short-term bets on whether they think the price of a stock or other assets will rise or fall within a specified timeframe. Scammers and unscrupulous brokers, however, will manipulate the trading platforms, making sure that you’ll lose your bet, and your money. Moreover, victims often have issues withdrawing their funds and reaching out to the fraudulent brokerage websites once the deed is done.

Crypto scams

A crypto scam involves some kind of deceptive practices within the realm of digital currency space. Scammers and fraudsters use the decentralised and often anonymous nature of cryptos to scam investors. Crypto scams are very common, especially given how young the younger generation of online investors has gotten. Common scams include fake Initial Coin Offerings (ICOs), pump-and-dump schemes and fraudulent exchanges.

1. ICOs scams involve the creation of fake ICOs by scammers, enticing investors to buy tokens of a non-existent or worthless project. Once they raise funds, scammers disappear, leaving investors with losses.

2. Pump-and-dump schemes are somewhat less risky for frauders. Scammers artificially inflate the price of a cryptocurrency by spreading positive information, luring investors to buy in. Once the price peaks, scammers quickly sell off their holdings, causing the value to crash and leaving other investors with losses. As we said, the realm of cryptos is decentralised and anonymous, and getting your money back or suing your scammers is going to be virtually impossible.

Affinity fraud

Affinity fraud is a kind of investment that is meant to prey on the trust between individuals part of a specific community, exploiting shared affiliations such as religion, ethnicity or social circles in general. In very simple terms, fraudsters and scammers are able to infiltrate groups where trust is very high, convincing the members of these groups to invest and commit fraudulent schemes and actions.

This deceptive practice has gained notoriety through the hit Netflix series “Wild Wild Country,” which portrayed the exploits of the controversial spiritual leader Osho. The series goes into detail in portraying how Osho and the people around him went on to manipulate the trust of their followers, leading to a massive case of affinity fraud. Affinity fraud extends beyond cults and goes on to infiltrating and affecting various communities both online and offline.

You should remain cautious, conduct research and be wary of falling victim to scams disguised as friendly opportunities within your trusted circles.

Emerging threats

1. Deepfake investment advisors

A Deepfake investment advisor is the deceptive use of deepfake tech where scammers create realistic videos and audio recordings featuring fake humanoids posing as financial experts. These personas give out seemingly expert advice in order to manipulate people into making poor financial decisions and falling into their traps. It’s a new age form of fraud where the trustworthiness of these personas is exploited to deceive people into making ill-informed investment choices, leading to sometimes significant financial and personal losses. You should be very cautious and verify the authenticity of financial advice, especially now that the credibility of online sources has never been more in danger.

2. Decentralized Finance (DeFi) exploitation

Together with the growing popularity of decentralised platforms, scammers have found new opportunities to exploit vulnerable users and vulnerabilities within these systems. DeFi scams can take a multitude of forms, from fake token sales to sudden withdrawals of funds and smart contract exploits. You’ll always need to be careful, whatever you do and whichever website you decide to rely on. There are hundreds of “vetted” websites to choose from, and social media can be a powerful tool to assess websites you might feel weird about. Look up threads on Twitter and Reddit, you’ll find useful information that will help you make a more informed decision when picking a platform.

Disclaimer: This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.