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Keeping Your Shirt On: Financial Scams and Investment Schemes to be Wary Of


Fraud Alert

There’s the old bit of wisdom that tells us it’s a lot harder to keep your money than it is to make it. A fool and his money are soon parted, put another way. When it comes to the digital age and the financial spaces it has opened up, the unfortunate reality is that more and more people are falling prey to investment schemes, financial scams, and all sorts of fraud.

It doesn’t matter how tech- and finance-savvy you may be, there will always be someone just a little bit savvier than you, and you may find yourself unlucky enough to be their next target. They are constantly changing and evolving to be a step ahead of our defenses and law enforcement, and the internet has given them a global reach they didn’t have before. Besides all this, the chances of falling prey to these traps doesn’t have any bearing on the victim’s intelligence – gullibility, or how easily a person can be manipulated or tricked is entirely independent of their intellect. How, then, can we protect ourselves and vulnerable loved ones such as the elderly from these predators?

The simple answer is through knowledge. Knowledge is our best defense against these possible dangers is to have an understanding of how they operate and the warning signs to look out for. Forewarned is forearmed. Let’s take a quick look at some of the most widespread fraud and theft models out there so that we may be better prepared to defend ourselves against them should we ever encounter them.

Ponzi Schemes

These types of schemes were originated by Charles Ponzi, an American national who offered to carry out and oversee an arbitrage operation on international reply coupons paired with U/S. Postal stamps, thereafter offering all his clients a whopping 50% return on their investment in only 45 days. What he was doing instead was using the money paid in by later clients to pay off the first ones to come on board, meaning that there was only money coming in as long as more and more people fell for the scheme, and that couldn’t last forever, leading to losses for majority of the people that paid into the scam.

Keeping Your Shirt On Financial Scams Investment Schemes Be Wary Of

Pyramid Schemes

These are close cousins to Ponzi schemes, with the only difference being the fact that in Ponzi schemes, the investors are led to believe that their earnings come from the performance of their investments, while pyramid scheme victims are fully aware of the fact that their earnings are directly tied to the number of people they can recruit to the operation.

Even though those participating in pyramid schemes are fully aware that the scheme must eventually collapse once a certain number of new recruits is reached, the allure of a quick profit on a small investment is too much for many. Watch out for opportunities offering above-normal profits as whatever sounds too good to be true usually isn’t.

Pump-and-Dump Schemes

These are a type of illegal money-making plot that takes place in financial markets where stocks, currencies, and commodities are being traded. What happens is that unscrupulous salesmen might decide to drive up the value of a particular under-capitalized holding through the dissemination of fabricated news and falsified financial records (the pumping) only to sell them once the prices reach a high price, making incredibly high profits (the dumping). This leaves those who innocently bought the shares thinking it was a legitimately well-performing concern are left with essentially worthless stock.

While forex scams rarely take the form of the pump-and-dump model due to the massive capital that would require, stock markets are highly susceptible to the scheme, with millions of dollars being lost by unwary investors every year all over the world’s exchanges.

Pre-IPO Investment Fraud

It is the dream of many investors to be the one to place their money on a potentially massive success even before the opportunity is opened to the general public through the launch of an IPO (Initial Public Offering). The same might be said today of Initial Coin Offerings (ICOs) behind various startups spurred on by the rapid rise of blockchain technology and cryptocurrencies such as Bitcoin.

What happens here is that shares are offered privately and without the required government notification such dealings are obligated to make. The trap here is that these deals are not reviewed by any regulatory authority, meaning that they are usually filled with highly optimistic projections, if not outright falsehoods about the business’s fundamentals, management qualifications, and such relevant factors. Once again, the sad but true fact to keep in mind is that when it’s too good to be true, it probably isn’t.


CEO and Founder of Slashsquare, Indian Blog Network and Web Consulting Media. HBB is a part of Slashsquare Network. I'm a Tech Blogger, Striving Entrepreneur, Atheist, and Proud Indian. Catch me on Facebook and Twitter.

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