Investment scams

Types of investment scams. How to avoid online investment scams. Ponzi scheme, HYIP, off shore investing, prime bank, pump and dump and more info about investment scams.

Types of investment scams:


Ponzi Scheme - HYIP, Autosurf etc

A type of pyramid scheme, this is where money from new investors is used to provide a return to previous investors. The scheme collapses when money owed to previous investors is greater than the money that can be raised from new ones. Ponzi schemes always collapse eventually.

Pump and Dump

A highly illegal practice where a small group of informed people buy a stock before they recommend it to thousands of investors. The result is a quick spike in stock price followed by an equally fast downfall. The perpetrators who bought the stock early sell off when the price peaks at a huge profit. Most pump and dump schemes recommend companies that are over-the-counter bulletin board (OTCBB) and have a small float. Small companies are more volatile and it's easier to manipulate a stock when there's little or no information available about the company. There is also a variation of this scam called the "short and distort." Instead of spreading positive news, fraudsters use a smear campaign and attempt to drive the stock price down. Profit is then made by short selling.

Off Shore Investing

These are becoming one of the more popular scams to trap U.S. and Canadian investors. Conflicting time zones, differing currencies, and the high costs of international telephone calls made it difficult for fraudsters to prey on North American residents. The Internet has eroded these barriers. Be all the more cautious when considering an investment opportunity originating in another country. It's extremely difficult for your local law enforcement agencies to investigate and prosecute foreign criminals.

Prime Bank

Prime bank term usually describes the top 50 banks in the world. Prime banks trade high quality and low risk instruments such as world paper, International Monetary Fund bonds, and Federal Reserve notes. You should be very wary when you hear this term--it is often used by fraudsters looking to lend legitimacy to their cause. Prime bank programs often claim investors' funds will be used to purchase and trade "prime bank" financial instruments for huge gains. Unfortunately these "prime bank" instruments often never exist and people lose all of their money.


How to avoid investment scams

- Be cautious about emails for investments. Many unsolicited emails are fraudulent.

- Don’t believe claims that there is no risk. There is always risk in investments, and no one but a con artist will tell you otherwise. Know the risk before you invest.

- Beware of promises that you’ll make big profits fast.

- Get the details in writing. Legitimate companies will be happy to give you all the information you need.

- Don’t agree to anything on the spot. Pressure to act immediately is a danger sign of fraud.

- Understand your investments. Do you know the difference between stocks and bonds, margin accounts and cash accounts, options and futures, mutual funds and certificates of deposit? If not, do your homework before you invest.

- Don’t act on testimonials from strangers. Someone who appears to want to share a friendly tip about a great investment opportunity may actually be a con artist trying to lure you into an investment scam.

- Be especially wary of investments in commodities.  Crooks often promise that the value of investments in coins, precious metals, artwork, oil leases, gemstones, and other commodities will rise. The truth is that the value of these types of investments can go up or down significantly.

- Steer clear of “offshore investments.” These are often promoted as a way to avoid taxes. Actually, you are still liable for taxes, and the investments themselves are usually very risky.