Investment scams will always try to appear more attractive than conventional
investments by claiming unrealistic returns with little or 'no risk'
involved and statements about urgency and secrecy.
They may even offer 'guaranteed' returns, which is easy to do if you are not
going to be around to pay up!
Most of the investment scams are not new however the Internet has made it easy for scammers to reach millions of potential
victims at minimal cost. Anyone can reach thousands of people by building a
web site, posting on a online bulletin board, sending mass emails, or taking
part in a discussion in a chat room.
It is easy for scammers to produce a professional looking website, or to
make their messages in bulletin boards or chat rooms to look real and
This makes it almost impossible for investors to sort fact from fiction!
Why do Investment Scams Work?
Scammers rely on 3 basic principles of human behavior:
Greed - promises of easy riches for little or no work
No Risk - most people are nervous to take a risk, so
the scammers sell the concept with little or no risk - so why would you
not take it if it has no risk and will yield huge returns?
Urgency and Scarcity - "Act quickly or you will miss
out" or "Only limited places left to cash in on this opportunity". This
is used to lure you in quickly before you have a chance to research or
check out the investment opportunity
Listed below are other pages with more specific detail on:
In recent years hundreds of online investment newsletters have appeared,
with many of them claiming to offer unbiased information free of charge or
recommending stock picks of the month.
Some are genuine, however some are used for fraudulent purposes. Some
companies pay the writers/owners of the newsletter to recommend their stocks
[which isn't illegal]. Some however promote worthless stocks or spread
misleading information which may push the price of stock up and allow them
to sell their own at a high price and high profit.
Online Bulletin Boards Popular for Investment Frauds
These have become popular forums for investors to share information whether
it is Usenet, web-based bulletin boards or newsgroups.
Some of the information is genuine, however some is fraudulent, and trying
to determine which is which, is almost impossible. Scammers can pretend to
reveal 'inside information' about future announcements or contracts.
They can claim to be unbiased researchers and in fact be shareholders, paid
promoters or company personnel. People taking part in bulletin boards can
hide their identity under aliases, and can post many messages under
different aliases to create the illusion of a lot of interest.
Red Flags of Investment Scams
It offers high rewards with little or no risk, or
'safe' or 'risk free', or 'guaranteed results'
You are advised to take up the offer immediately or
you will lose the opportunity
You have been selected from a small group for a
There are few, if any details of the person or
company making the offer
The offer arrives via unsolicited email [spam] and
promises huge results with no risk. Remember brokers and traders aren't
going to give away good tips for free
An offer to share 'inside' information along with
pressure to invest before you can do any research
If a company is not registered or has
not filed a "Form D" with the SEC, visit the website of the North
American Securities Administrators Association to find your
state securities regulator
How to Avoid the Investment Scams
Do your research and never make an investment based
on what you read in newsletters, bulletin boards, or chat rooms to avoid
Before you invest in a company, check to see if it
is registered with the Securities and Exchange Commission and read its
reports. Anyone can access and download these reports from the SEC's
But some companies don't have to register their securities or file
reports on EDGAR due to their small size, however they are required to
file some information under Regulation A or a Form D. If you can't find
a company on EDGAR, call the SEC at (202) 551-8090 and find out if the
company filed information under Regulation A or a Form D, and if so,
request a copy
Check with your
state securities regulator which you can find on the website
of the North American Securities Administrators Association, to see if
they have more information about the company and the people behind it.
They can check the Central Registration Depository (CRD) and tell you
whether the broker selling the stock or the broker's firm has a
disciplinary history. They can also tell you whether they've cleared the
offering for sale in your state
Check the disciplinary history of the broker or firm that is selling the
stock by using FINRA's
or call FINRA's BrokerCheck Program hotline at (800) 289-9999
Before you invest, always obtain written financial
information, such as a prospectus, annual report, offering circular, and
financial statements. Compare the written information to what you've
read on-line and watch out if you're told that no information is
Check with a trusted financial advisor, your broker,
or attorney about any investment you learn about on-line
Beware of any investment whose past performance and potential growth
cannot be easily checked, for example in the financial press or via an
independent financial adviser. Ask yourself, "Why not?"
Ignore emails, chain letters or any other unsolicited approach that
promotes get-rich-quick schemes
Be skeptical of "off-shore" or foreign investments. And beware of exotic
or unusual sounding investments, especially those involving so-called
"prime bank" securities
What to do if you are a Victim of an Investment Scam
Report them to the Security and Exchange Commission
(SEC). They have online forms to contact them at their complaint site:
You can also write them at:
Securities and Exchange Commission
Office of Investor Education & Assistance
450 Fifth Street, N.W.
Washington, D.C. 20549-0213
More Information to Avoid Investment Scams
For more information on how to invest wisely, ask for the Securities and
Exchange Commission publications: