How to Protect Yourself and Family from Investment Scams
Investment scams are often so professional, slick and believable it can be hard to tell them apart from genuine investment opportunities. Learn what investment scams are and how to protect yourself.
- How to identify an investment scam
- How to check an investment is real
- How to protect yourself from investment scams
How to identify an investment scam
Investment scams can come to you via a phone call, email or social media. They may even be an offer from someone you trust or are introduced to you by someone you know. In an investment scam, the money you “invest” goes into the scammer's bank account and not toward any real investment. Investment scammers are skilled at convincing people to believe in the investment, the returns are high and the risks to your money are low or non-existent. Be suspicious of anyone offering you easy money.
The three main types of investment scams are:
- An investment offer that’s completely fake and does not exist.
- An investment offer does exist, but the money you give the scammer is not going towards that investment.
- The scammer says they represent a well-known investment company but are lying.
How scammers get you to invest
To get you to give them your money, a scammer may tell you they're offering:
- high, quick returns or tax-free benefits
- share, mortgage, real estate or virtual currency investments, option trading or foreign currency trading
- an opportunity with no risk or low risk, because you'll be able to sell anytime, get a refund for non-performance, have insured or “guaranteed” transactions or be able to swap one investment for another
- inside information, the opportunity to invest before a public float or discounts for early bird investors.
Warning signs of investment scams
The investment offer may be a scam if the person:
- calls you repeatedly and tries to keep you on the phone, or sends you lots of emails to keep you engaged
- says you need to make a quick decision or you'll miss out on the deal
- uses a name or claims to be associated with a reputable organization to gain credibility, e.g. NASDAQ, Bloomberg
If the investment offer has some of these signs, hang up the phone or delete the email. You can file a complaint with the Securities and Exchange Commission if you saved details of the scam.
Tactics used by investment scammers
Scammers will use a range of tactics to trick you into investing in their company. Some of the common strategies are:
- Directing you to a fake website. Scammers use highly sophisticated websites and issue fake online press releases that make false claims of outstanding corporate performance. They may provide some victims with logins to view fake investment balances and growing returns.
- Stopping you pulling out of the deal. If you try to pull out of the deal, scammers may try to swap your current investment for another one or convince you that your investment will increase in value soon.
- Threatening legal action. Scammers may threaten you with prosecution or hefty fees to keep you from pulling out of the deal.
- Using social media to approach you or your friends. Scammers may message you, display an advertisement in your social media feed, or send you a friend request. They may pose as someone you know or are connected to, in order to gain access to your profile information and send you offers to invest and make quick money. Scammers may also use your information to impersonate you and create a fake social media account to approach people in your friends list.
- Artificially inflating the share price. Scammers buy shares in a small company at a low price, then send out false tips about the company having great prospects. As more people invest, the share price rises and the scammers sell their shares at the peak of the price rise. Then the share price falls and the shareholders are left holding them at the reduced value.
- Passing your call along the line. Investment scammers use a team of less experienced staff to make the initial call. The junior staff follow a tight script to check your interest. If you take the bait, they hand you over to a more senior person, called a “closer.” Closers are extremely skillful sales agents, and their job is to make you feel compelled to close the deal and send your money.
- Calling or emailing you persistently. Investment scammers will call or email you endlessly, or keep you on a phone call for a long time with promises of wealth or opportunities lost if you don't take up their offer. They will not take no for an answer and will ask you about your worries to reassure you. As long as they can keep you talking or emailing, you haven't really said no.
- Operating from overseas. Many investment scammers operate from overseas or offer foreign investments.
How to check an investment is real
Before signing up to any investment, do your homework to make sure it's legitimate. Asking questions and doing some research on the company could save you from losing money to a scam.
- Research investment opportunities and investment professionals by looking at your state securities regulator and the Financial Industry Regulatory Authority.
- Ask where the investment and the investment professional have registered.
- Cross-check their address and contact information on publicly-listed phone directories or online.
- Get all the investment details in writing.
- Ask questions about costs, timing and risks.
Why investing overseas is risky
Remember that investing with overseas companies can be risky, because you won't be able to get help if something goes wrong. Don't part with your hard-earned money unless you understand the risks involved.
How to protect yourself from investment scams
There are many things you can do to make sure you don't fall victim to an investment scam, including:
- Always get independent financial advice before you invest.
- Use the information on this page to do your own research on any investment opportunity.
- Recognize the danger signs to help you to identify an investment scam.
- Don't accept a message or friend request on social media from someone you do not know.
- Ensure your privacy settings are up to date on your social media accounts.
- Be wary of random or unexpected contact, particularly if you have replied to something on a website or social media platform.
- Be wary of promises that seem too good to be true, such as guaranteed earnings or risk-free.
If you think you have been the victim of an investment scam, you should:
- Report it to the police (include the company name, location and contact details, if you have them)
- File a complaint with the Securities and Exchange Commission.
- Stop sending any money to the company. Be wary of falling for a secondary scam or offers to recover your money.