Whether you are a first-time investor or have been investing for a long time, you must always be aware of the several types of fraud going around nowadays so that you can avoid losing your hard-earned money.
Want to know the most common types of investment scams nowadays? Let’s find out:
Ponzi Scheme
This is one of those schemes that have been going on for decades. Let’s first understand the Ponzi scheme definition.
Existing investors are paid with funds raised from new investors in a Ponzi scheme. Ponzi scheme organizers usually promise to provide huge returns with little or no risk involved without investing a penny themselves. Instead, they usually keep the money for themselves.
Because they have little or no actual earnings, Ponzi schemes require a constant inflow of new money to stay afloat. When it becomes difficult to recruit new investors or when a large number of existing investors pay out, these schemes reach their downfall.
Pyramid Scheme
Nowadays, pyramid schemes are usually advertised on online platforms like social media, corporate websites, YouTube videos, and more. Promoters of pyramid schemes take considerable measures to make the scheme appear to be a legitimate multi-level marketing enterprise. On the other hand, the fraudsters utilize money from new recruits to pay off earlier-stage investors (usually recruits as well). The schemes grow too big at some time, and the promoter is unable to obtain enough money from new investors to pay previous investors, resulting in individuals losing their money and the eventual decline of the scheme.
Promissory Note Scheme
As understood by the name itself, promissory notes are marketed by promoters who ask for short-term loans, promising investors a large sum in return without any involved risks.
However, it is impossible for any investment opportunity to be completely “risk-free,” “insured,” or “guaranteed,” as there are several factors to consider. When the company is new or non-existent, the notes may be referred to as “prime quality” to make them appear to be a high-quality investment for the people. The con artist will attempt to make the notes sound as if they are a sure thing for investors.
Payments may grow inconsistent or cease altogether as time passes. This means that the fraud is coming to an end, and you will lose all your money.
Real Estate Investment
The majority of people believe that the real estate market always goes up, which is one of the many reasons it is their first choice of investment. We are sorry to burst your bubble, but real estate can be a scam in a lot of cases too, and thus it is crucial to stay vigilant at all times if you wish to avoid a massive investment fraud.
While many people buy real estate as a personal investment or a place to live, it is also sold as a security from time to time. These are sales in which the buyer does not own or live on the property but may be able to profit from the efforts of another party involved with the property.
Illegal schemes are frequently marketed through aggressive promotions that promise large profits to investors in a short period. The money is invested in a fund that is presumably used to buy and hold real estate. Frequently, investors are paid hefty fees and given little in the way of specifics or risk disclosure.
The property value is sometimes overstated to entice investors in illicit schemes; other times, there is no property at all to even begin with, thus drowning all their money.
Pump and Dump Scheme
There are two aspects to “pump and dump” schemes. In the first, promoters attempt to inflate a stock’s price by making incorrect or misleading assertions about the company. After the stock price has been inflated, fraudsters move on to the second stage, in which they try to profit by selling their own stock holdings and dumping shares into the market.
These kinds of scams are common on the internet. When these con artists sell their stock and cease advertising it, the price usually drops, and investors lose money.
The Bottom Line
Now that you have learned about the most common types of frauds frauds, we hope that you will stay mindful and always spend plenty of time conducting thorough research on any investment opportunity. Stay vigilant, and stay safe!