How to avoid digital investment scams in 7 steps

Financial fraud is nothing new, but investment scams increased by 28% in 2020.

Scammers will do their best to capitalize on your worries about low-interest rates and won’t shy away from promising high returns on investments. But it’s all just a front for stealing money from you.

As attractive as a little lucrative side-hustle seems, the landscape isn’t always rife with good opportunities. But looking for that extra bit of income shouldn’t come with the stress of being scammed.

So, let me tell you all about investment scams and how to avoid them.

Criminals are defrauding investors in rising numbers

As millions of people lost their income in 2020, more and more folks started looking into side-hustles online. But so did scammers.

During the coronavirus pandemic, there has been a significant uptick in consumer complaints involving investment fraud.

Source: Association of Certified Fraud Examiners

Anti-fraud professionals are registering increases in nearly every category, especially in:

      • Insurance fraud: 12% increase
      • Loan and bank fraud: 11% increase
      • Financial statement fraud: 11% increase
      • Identity theft: 10% increase
      • Employee embezzlement: 9% increase.
 

And it looks like investment scams, a type of income scams, are here to stay scam.

In investment scams, con artists lure victims in by promising high returns.

Some victims are persuaded to give out even more money after receiving a “return” on their original investment. Oftentimes, they may not realize for months that they’ve been scammed.

A UK financial watchdog reported that investment scams rose by 29% in April 2020, around the time of the first national lockdown.

Investment scams made up the highest proportion of authorized fraud losses in 2020, with over £135 million ($186 million) lost.

Given these figures, you can tell that investment scammers are prepared to play the long game.

The coronavirus outbreak sadly led to many people losing their job or having to manage with a lower income than they were used to. It has also caused a shake-up in the economy in general, with interest rates falling, in a similar way to the financial crisis of 2008. All of these factors provide criminals with the opportunity to attract more people with their fraudulent investment schemes.
Pauline Smith, Head of Action Fraud

Add to the mix the public’s newfound love for trading, and you got the perfect storm. After Reddit’s r/Wallstreetbets fueled dreams of fast and easy money with the GameStop rally, people started looking for hedge funds, cryptocurrencies, day trading, and investments to make some profit.

Protect yourself from investment scams

Financial fraud is something you hear about on the news when businesses or influential people are involved in money laundering. But that’s just the tip of the iceberg.

If someone lies, manipulates, and deceives you to steal your money or financial information, that’s also financial fraud. And the people who do it use sophisticated and effective social engineering tactics to get you to open your wallet.

In a visual element: Social engineering relies on manipulation to gain access to your financial information instead of hacking your bank account.

And they have a lot of resources and means for their schemes.

Here are some of the most popular ones.

Ponzi schemes

The classics never seem to die. But, after all, you can always find investors looking to get rich quick, right?

In a Ponzi scheme, criminals use money from new investors to pay existing ones. Investment “returns” disbursed to investors consist of money from other defrauded people. The system relies on continuously bringing new people into the fold.

The person organizing this type of fraud controls the entire operation; they merely transfer funds from one client to another and forgo any actual investment activities.

Ponzi schemes are a scam because they can only exist as long as the money is being recycled to and from different investors.

Pyramid schemes

Pyramid schemes are a fraudulent system of making money based on recruiting an ever-increasing number of investors.

Initial promoters recruit investors, who in turn recruit more investors, and so on. The scheme is called a “pyramid” because at each level, the number of investors increases.

The small group of initial promotors at the top require a large base of later investors to support the scheme by providing profits to the earlier investors.

Pyramid schemes are doomed to fail at one point or another. That’s because their success depends on constantly getting more people on board. But since there are only so many people in any given community, all pyramid schemes ultimately collapse.

Keep in mind, though, that the only people making money are the few ones at the top of the pyramid.

Advance fee schemes

Suppose you’ve gotten an email from a Nigerian Prince who wants to share his inheritance with you. In that case, you’re already familiar with one of the classic examples of the advance fee scheme.

An advance fee scheme happens when scammers ask for payment in advance. It can be for any goods or service, such as a loan, contract, investment, or even gifts. This sum can generally be a maintenance fee or a due diligence fee.

But let’s not kid ourselves. At the end of the day, people receive nothing in return.

Early pension release

Your pension is one of your most valuable assets. After all, it’s the means to financial security throughout retirement and the rest of your life.

But, like anything valuable, your pension can become the target for scammers.

Be wary of any scheme offering to help with money from your pension before you’re 55. Pension releases are generally well regulated, and legislation around retirement money differs from country to country.

Check your local laws before signing into anything. You may never see your money again and get hit with a hefty tax bill.

Remember, once you’ve transferred your pension into a scam, it’s often too late.

Cryptocurrency scam

As more people discover cryptocurrency, scammers are finding new ways of using their getting-rich hopes against them. For example, evildoers might offer investment and business opportunities, like buying a new cryptocurrency.

Before a new cryptocurrency launches on an exchange, coins or tokens can be bought as part of an Initial Coin Offering (ICO).

This is what’s known as a pump-and-dump. Prices get inflated at launch and then rapidly crash. However, when it’s all a scam, the specific cryptocurrency will never exist; it’s all a fake ICO.

Scammers can also use malicious exchange software to steal your personal information, like your IP address, email address, or even your financial information.

Basically, watch out for anyone who:

      • Guarantees that you’ll make money
      • Promises big payouts that will double or even triple your money quickly
      • Promises free money in a cryptocurrency
      • Makes dubious claims about their company

Overseas holiday properties

Holiday properties are a dream for many people. So, naturally, scammers try to lure in folks with overseas homes at meager prices.

The sad part is that they don’t exist.

Here’s how this scam works:

A desirable property is advertised at a reasonable rate. Quality photos and a contact email address are provided. The scammer poses as the owner, asks for a deposit, and wants it paid to a bank account or via a money transfer service such as Western Union or Moneygram.

By the time the victim realizes it’s a scam, their money is gone, and their point of contact won’t answer their calls or emails.

The same thing can happen for overseas holiday bookings.

According to police statistics, holidaymakers were conned out of $9.2m last year booking holiday apartments or villas that didn’t exist.

The safest way to make a reservation for a private holiday property is through a reputable booking site or a tour operator. While it can be cheaper to book directly with the owner, there is a greater risk of fraud, and it will be harder to sort things out if they go wrong.

Land banking

Land banking is possibly one of the oldest scams in existence.

Land banking scams occur when small plots of agricultural land are advertised as investment opportunities, under the pretense that they’ll be later be sold to a developer for a hefty profit.

The plots tend to be in areas where house prices are high, near urban areas, or close to zones that have been allocated for development.

With scammers, you either won’t receive proof of purchase or buy a plot of land in an area that no developer has an interest in.

This can happen anywhere in the world, from Panama to Ukraine, Brazil, Bulgaria, and Africa, including Sierra Leone and Ghana.

Fake charities

Fake charities take advantage of your generosity and compassion, which makes them particularly heinous.

According to the Federal Trade Commission (FTC), fake charities use the same techniques to steal your money that legitimate charities use to raise funds. At first glance, it can be hard to tell whether it’s all real or not.

But the problem with charity scams is twofold. Not only do these scams cost you money, but they also divert much-needed donations away from legitimate charities and causes. And you want your donations to count.

That’s why it’s essential to ask questions whenever you’re asked to donate over the phone, via direct mail, or online.

Do some research before donating. You should know, for example, exactly how much of your donation goes to the program you want to support.

   

Scams vary in theme and approach, but the intent is always the same; to trick you into giving out your hard-earned money.

Unfortunately, once you send over money, it’s tough to get them back, and it can take months for a police investigation to happen.

This is why it’s best to take a defensive approach and learn to recognize when dealing with scammers.

Here are 7 things you can do to avoid falling prey to a digital investment scam.

1. Have a healthy dose of skepticism

It’s said that a curious mind should always exercise caution. And this holds true in investment offers too.

Always be suspicious of investment opportunities that promise a high return with little or no risk. Every investment is a gamble that could prove unfruitful, and reputable financial advisors tell you this upfront.

Skepticism is your greatest weapon. If something sounds too good to be true, it most probably is.

2. Check if the “financial advisor” is registered

In most countries, financial services companies need a license to operate. Financial institutions have to register with a bank for anti-money laundering purposes.

Financial advisors can also help you with your finances in various ways, from savings to opening a bank account to navigating the stock market.

But if an advisor is limited to investments with very little knowledge in other finance areas, then you might want to check their credentials and license.

If a financial advisor doesn’t have the proper paperwork, don’t give them any personal information or money. If you already gave out your financial information, report this incident to your local authorities.

3. Check the company’s listings

In corporate finance, a listing refers to the company’s shares being on the stock list that is officially traded on a stock exchange. Each stock exchange has its listing requirements or rules, making it easier for you to weed out anything sketchy.

If you feel an offer to buy shares might be legitimate, always check the company’s listing on the stock exchange for its current value and recent shares performance.

Some offers to buy your shares may well be below market value.

Here’s where you can start.

4. Do not let anyone pressure you into making decisions

If someone is pressuring you to invest your money, this is a huge red flag.

Ignore the “everyone is doing it” story. Don’t believe claims that “everyone” is in on the deal. Be wary of a sales pitch that focuses on how many people are investing without telling you why it is a sound plan for you.

If someone tells you that the offer is for a limited time only or that investment opportunities are limited, consider it a red flag. A legitimate investment will not change that drastically within such a short period.

Every reputable financial institution should give you guidance and a timeframe to think about your options. Just think about how many papers, terms, conditions, and clauses you need to read and agree to before taking out a bank loan. Deciding where to invest your money doesn’t deserve any less attention.

It’s never a good idea to rush your decisions, especially when it comes to your money. And if you feel someone is pressuring you, don’t hesitate to seek independent legal or financial advice.

5. Never give out your personal financial information

Dealing with personal consumer details is always tricky. Businesses have regulations they need to abide by to ensure your personal data is safe and inaccessible by third parties. This includes secure web pages, databases, and apps.

That’s why, in general, it’s never a good idea to send out your personal or financial over the telephone, email, or DM.

In a visual element: Don’t give out any personal details to unknown callers or send your credit card information in replies to unsolicited emails.

Legitimate apps and registered brokers can advise you without needing access to your private information.

6. Check the stock exchange’s URL

You can hover with the cursor over the link to check the URL. Any misspellings and typos are a sign of a phishing scam.

In a visual element: Phishing is the fraudulent practice of sending emails and pretending to represent a reputable company to entice you to reveal personal information, such as passwords, company data, credit card numbers, or other valuable information.

Look for an uppercase I switched with a lowercase l. Or a 0 instead of an O. A mismatched or pixelated logo is also sketchy.

If anything looks fishy to you, don’t enter any personal details and leave the website.

If you receive the URL through email or DM, don’t click on it.

7. Protect your identity

As businesses increasingly depend on electronic data, identity theft has quickly become a lucrative criminal industry.

With personal and financial information transferred and stored online, people can be left exposed to privacy violations in the form of identity theft.

In a visual element: Out of the total 4.8 million reports received by the FTC in 2020, the most by category were for identity theft complaints.

Identity thefts are especially egregious, not just because of the gross violation of privacy but also because the compromised financial data can perpetuate further damage. Yes, your stolen funds can be used in other scams, frauds, or schemes.

So, malicious parties have every incentive to get their grubby hands on your digital identity.

This is why it’s essential to protect your whole online identity and secure your gadgets. And VPN software is exactly what you need to start maintaining your digital confidentiality.

A VPN, short for Virtual Private Network, reroutes your entire internet traffic through the VPN servers. This also hides your IP address and adds a layer of anonymity to your outgoing internet traffic.

On top of that, your entire connection is encrypted. That means no one can track your online activity.

   

If you have been the victim of an investment scam, contact your local law enforcement immediately. As an added security measure, you might also want to get in touch with your bank for them to try to reverse any charges if you’ve sent money via your credit card.

 

Until next time, stay safe and secure!

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