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Common Investment Scams

Fraudsters are clever people who are intent on developing new ways to scam individuals out of their hard-earned money. With investment scams on the rise in the United States, all consumers must remain vigilant when making any type of investment. In this article, we discuss several common investment scams that consumers should be aware of, and likely avoid.

Common Investment Scams to Look Out For

1. Private Placements/Exempt Securities Scams

When a company wants to sell securities in the United States, must register with the SEC. Private placements are an exception. They may be sold without SEC registration so long as the offering does not violate the antifraud prohibitions of the federal securities laws. This means that any information a company provides to investors must be free from false or misleading statements. Similarly, a company should not exclude any information if the omission makes what is provided to investors false or misleading.

On their own, private placements/exempt securities are not scams. But some scammers pitch fraudulent investments as “exempt” securities. They might also fail to make material and significant disclosures in their offering documents. Be suspicious if you get an unsolicited phone call or email about a “hot tip” on a promising business that is about to go public. You may be told that the investment is only available to very wealthy people, but an exception will be made for you. You could be asked to sign some paperwork that misrepresents your income or net worth. If you have to lie about how much money you have, you are likely dealing with someone who breaks the rules.

2. Forex scam

The foreign exchange (forex) market is considered to be the largest and most liquid financial market in the world. Investors buy and sell currencies with the aim of making money on changes in exchange rates. But trading in foreign currencies can be very risky. Forex ads promote easy access to the foreign exchange market, often through courses or software. But foreign exchange trading is dominated by large, well-resourced international banks with highly trained staff, access to leading edge technology and large trading accounts. It is extremely difficult to consistently beat these professionals. You may not be told how risky forex trading is before you invest.

In addition, some forex trading schemes may be illegal or fraudulent. Given that forex trading services are often operated online from another country, unregulated firms may be marketing their services outside of the rules. Your money may not be invested as claimed, and you may be asked to wire money into an offshore account before you begin trading, where the money will be inaccessible. In any of these situations, you’re likely to lose some or all of your money.

3. Advance Fee Scheme

In an advance fee scheme, the victim is persuaded to pay money up front to take advantage of an offer promising significantly more in return. The catch is that the scammer takes the money and the victim never hears from them again.

4. Boiler Room Scams

Investment scams are often pulled off by a team of people who set up a makeshift office, called a “boiler room”. To convince you their company is legitimate, they might send you to the company’s website, which looks very professional. They might also set up a toll-free number and keep a respectable address to make the company seem legitimate. However, the company might not actually exist. Everything on the website may be fake, and the office could be a post office box or temporary office. By the time you realize you’ve lost your money, the scammer will have closed up shop and moved on to another scam.

5. Offshore Investing Scams

This scam promises huge profits if you send your money “offshore” to another country. In most cases, the goal is to avoid or lower your taxes. Be skeptical of tax avoidance schemes – you could end up owing the government money in back taxes, interest and penalties.

There are other risks of offshore investing, too. If you move your money to another country and something goes wrong, you won’t likely be able to take your case to a civil court in the United States. It may prove impossible to recover your money.

6. Ponzi or Pyramid Schemes

These schemes recruit people through ads and e-mails that promise everything from making big money working from home to turning $10 into $20,000 in a few weeks. You may be given the chance to join a “special group of investors” who are going to get rich on a great investment. The invitation might even come from someone you know.

Investors who get into the scheme early may receive high returns fairly soon from what they think are interest payments. They are often so happy with the return that they invest more money, or recruit friends and family as new investors. The investment, however, doesn’t exist. The “interest payments” are paid from the investors’ own money and money from new investors. Eventually, new people stop joining the scheme and the money runs out. That is when the promoters will vanish, taking all the money with them.

7. Pump and Dump Scams

In these schemes, scammers work through lists of potential investors to promote an incredible deal on a low-priced stock. As more and more investors buy shares, the value of the stock rises. Once the price hits its peak, the scammer sells their shares and the value of the stock plummets. You’re left holding worthless stocks.

WARNING SIGNS OF INVESTMENT SCAMS

1. High returns and low risk.

2. Hot tip or insider information.

3. Pressure to buy now.

4. Seller not registered to sell investments – check BrokerCheck – Find a broker, investment or financial advisor (finra.org)

TAKE ACTION

If you believe you are the victim of an investment scam, we would like to hear from you. Contact us to discuss your legal rights and potential options to recover losses. The Schwartz Law Firm represents investors in claims against third parties, including financial advisors and brokers. If you have questions about your potential claim or need assistance from an investment fraud lawyer, please contact us for a free consultation at 866-618-0545 or email Matthew Schwartz directly at [email protected]

Matthew Schwartz

Matthew Schwartz is a Shareholder at Schwartz, P.A. where he serves as the practice group leader for their securities litigation and professional negligence practice group. His practice is focused on plaintiff-side securities arbitration and litigation, representing individual investors and institutions in claims against brokerage firms, investment advisors, commodities firms, hedge funds and others. He also represents plaintiffs who have been damaged by their insurance agents, lawyers, accountants and other professionals. He is an accomplished commercial litigator who has handled a variety of business disputes and other consumer claims.

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