6 Tips for Spotting an Investment Scam.
Posted on | July 9, 2008 |
Investment Fraud.
It can take away in a single day what it took you a lifetime to create and save.
There’s a saying that goes, “There are 2 times when scammers are at their busiest: when times are really good, and when times are really bad.”
I don’t need to tell you that things right now aren’t “really good”. Are they “really bad”? Well, that’s open to some debate but I’d say they’re bad enough that scammers have a large crop of victims to separate from their money. Here’s how not to become one.
That wonderful investment offer might be a scam if…
1) You receive unsolicited calls and emails.
Ask yourself, if this person or company is an honest broker or investment house, why are they calling me out of the blue?
2) They promise extraordinary returns.
If the market average for the past 6 months is 4% and you get an email for a stock that’s “guaranteed to return 1000% in the next 6 months”, it’s likely a scam. If it seems to good to be true, it is.
3) The investment doesn’t actually exist!
This is a common scam apparently. You get a call or email that directs you to a website and ask for a small amount to invest in the next up and coming stock, only the stock doesn’t actually exist! Of course, by the time many people realize that, the crooks are living it up in Nigeria, or wherever it is scammers live these days. The prevention to this one is to “trust but verify.” Make sure it exists!
4) The stock tip is for a microcap or “penny stock”.
A microcap or penny stock doesn’t trade that much and so it is easier to influence the price per share. This is the tool of choice for the “pump and dump” scammers. The pump and dump is where a person buys a couple hundred shares of a low price, seldom traded stock. Then they either call or spam emails to hundreds of unsuspecting (and unsolicited, see #1) people telling them how ABCMicro is going to make obscene profits in the next 4-6 weeks and they’d better get on board before it’s too late. Of course, as people fall for the scam, they bid the price up and it becomes a self fulfilling prophecy. Only the scammer knows it’s an illusion, and dumps his shares before the game is up. This is a big reason to avoid microcap and penny stocks. Or at the very least, avoid the ones that show up in “tips” from people you don’t know.
5) The person contacting you is overly pessimistic.
This scam is related to the pump and dump. It’s commonly referred to as the “short and abort” and it plays on fear. scammers short a stock (bet that it will go down), and then generate panic in shareholders to cause the price to fall. Again, this type of scam is easiest to effect with microcap stocks. Some scammers can be exceedingly cruel and run the price up artificially via the pump and dump, and then short the stock before contacting the people they victimized again to scare them into selling, thus victimizing them a second time.
6) The broker doesn’t exist!
This one sounds a bit too ridiculous, but maybe that’s why it works. It makes use of a couple of psychological factors. For one, most people who consider themselves savvy enough to spot a scam know to question the investment. They can tell if a stock exists and know enough to spot a 250% return on their money as suspect. But what they fail to question is the premise itself. Namely, the broker. They run all the numbers and check all the details of the investment they are being sold only to discover the investment itself was legit, but the person they “bought” it from doesn’t really exist! It’s kind of a plan of an evil genius, really. If you’re ever in doubt as to the existence of a broker, check him out on www.NASDR.com or www.SEC.gov,
What you can do.
If you suspect you are being scammed, check www.fraud.org or www.fraudbureau.com to see if what you’ve been told seems familiar to what you find there. You can also file a fraud claim.
Also, get to know the SEC and how investments work.
- Don’t invest if you don’t understand!
Photo, Online Fraud, © d70focus
Technorati Tags: Investing, Scams, Fraud
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April 16th, 2009 @ 8:56 am
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