Most Common Types of Investment Frauds You Must Avoid

Investment Fraud Recovery for Victims – All Isn’t Lost!

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1) What is Investment Fraud?

• Investment fraud occurs when people are manipulated or deceived while investing—to the point where any number of monies or property may be stolen by scams or brokers.

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2) Common Types of Investment Fraud

• Investment fraud comes in a number of forms and guises. Some of the most common ones include the following:

• Ponzi schemes

• Pyramid schemes

• Pump and dump schemes

• Advance fee fraud

• Microcap fraud

• Affinity fraud

• Promissory note scams

• High-yield investment program

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3) Ponzi Scheme

• A Ponzi scheme is a fraudulent investment plan.

• Ponzi schemes promise high financial returns or dividends not available through traditional investments.

• The scheme is named after Charles Ponzi, who duped investors using this technique in 1920.

• The organizers pay “dividends” to initial investors using the funds of subsequent investors rather than from profit earned.

• Usually Ponzi schemes collapse when new investors cannot be attracted.

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4) Tips for Avoiding Ponzi Schemes

• Be cautious of someone promising an investment return that is unnaturally high or steady.

• Avoid investments if you don't understand them or can't get gather appropriate information about them.

• Conduct the proper research before selecting investments. Also, consider doing background checks on the people with whom you invest.

• Consult unbiased broker or a financial advisor before investing in the scheme

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5) Pyramid schemes

• Pyramid schemes make money by continually recruiting new participants.

• In pyramid schemes, the victims themselves are induced to recruit more victims through the payment of recruitment commissions.

• The fraudsters promise sky-high returns in a short period of time.

• Pyramid schemes are also referred to as “franchise fraud” or “chain referral schemes.”

• Individual is offered a distributorship or franchise to market a particular product.

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6) How to Avoid Pyramid Schemes

• Check with the Securities and Exchange Commission (SEC) to see if it is a registered investment.

• Be wary of investors who promise high yield returns, or quick returns with no risk.

• Thoroughly analyze the prospects.

• To avoid a pyramid scheme meltdown of your assets, diversify your investment portfolio.

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7) Pump and Dump Schemes

• Promoters attempt to artificially boost the price of a stock with false information (pump).

• Promoters then gain by selling their shares after the stock is pumped.

• The inflated shares will sell off rapidly into the security market by the fraudsters (dump).

• Once fraudsters stop hyping the stock, the price typically falls and investors lose their money.

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8) How to Avoid Pump and Dump Schemes

• Don’t believe any hype before you do your research.

• Recognize that promises of quick gains are rarely true.

• Find out where the stock trades independently verify claims.

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9) Advance Fee Fraud

• This occurs when an investor asks to pay upfront or in advance for a fee, payment, or commission for the deal to go through in later date.

• Advance fee scheme generally target investors who already purchased underperforming assets.

• There are many variations of advance fee schemes.

• A company claims to be able to clean up your credit report and offers to do so in exchange for an advance fee.

• Con artists will offer to find financing arrangements for their clients who pay a “finder’s fee” in advance.

• They require their clients to sign contracts to pay the fee in advance.

• When they are introduced to the financing source, victims often learn that they are ineligible for financing only after they have paid the finder.

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10) Tips for Avoiding Advanced Fee Fraud

• Know the individuals or parties with whom you are dealing.

• Make sure you fully understand any business agreement before entering into it.

• Don't enter into an agreement with strangers if you did not initiate the contact.

• Be aware of businesses that operate from post office boxes or mail drops but do not have a street address.

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11) Microcap Fraud

• Microcap stock fraud is a form of securities fraud involving stocks of "microcap" companies.

• Microcap companies have small amounts of assets and low stock prices.

• Microcap stock fraud takes place among stocks traded on the OTC Bulletin Board and the Pink Sheets.

• It’s important to find accurate information when dealing with microcap stocks or penny stocks.

• Many of these companies don’t file reports with the SEC, which allows fraudsters to produce false and misleading information to trade.

• They usually disseminate information through email spam, paid promoters, and internet message boards.

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• This type of investment fraud targets members of particular group, such as religious or ethnic communities.

• Fraudsters who promote affinity scams frequently pretend to be members of the group.

• They enlist respected leaders from the group to spread the word about the scheme, convincing them it is legitimate and worthwhile.

• Often these leaders themselves become victims of the fraudster’s ruse.

• These scams exploit the trust and friendships that exist within groups of people.

• It is difficult for the law enforcement officials to detect an affinity scam.

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12) Affinity Fraud

13) How to Avoid Affinity Fraud

• Check out the background information when an opportunity is presented.

• Never make an investment solely based on the recommendation of a member of an organization or religious or ethnic group to which you belong.

• Investigate the investment thoroughly and check the details of every statement.

• Do not fall for investments that promise spectacular profits or "guaranteed" returns.

• Fraudsters often avoid putting things in writing, but legitimate investments are usually in writing.

• Fraudsters are increasingly using the Internet to target particular groups through e-mail spams.

• If you receive an unsolicited e-mail from someone you don't know, containing a "can't miss" investment, it is best is to ignore the mail or forward it to concerned authorities.

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• A promissory note is a form of debt that is similar to a loan or an IOU.

• For a set period of time, an investor agrees to loan money to the company.

• The company promises to pay the investor a fixed return with principal amount and interest.

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14) Promissory Note Scams

15) How Promissory Note Fraud Occurs

• The fraudsters may or may not be affiliated with the company.

• Fraudsters persuade agents to sell promissory notes by assuring them large commissions.

• These agents often do not have a license to sell securities.

• They promise a high, fixed-rate return with very low-level risk.

• Fraudulent promissory notes are sometimes issued on behalf of fictitious companies.

• The fraudsters use a portion of the money they collect from investors to pay the sellers their commissions.

• The fraudsters typically abscond with the rest.

• Promissory note scams often target elderly investors.

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16) Tips to Avoid Promissory Note Scams

• Generally, corporate promissory notes are not sold to the general public.

• If someone calls you or knocks on your door trying to sell you a promissory note, it is often a scam.

• Investors should investigate the person who is selling the promissory notes.

• Sellers should be licensed in their state, so confirm they are before conducting business.

• Insurance agents cannot sell promissory notes.

• Beware of promises of "risk free" returns.

• Compare the rate of return on promissory note.

• If the seller promises an above-market rate on a short-term note, proceed with caution.

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17) High Yield Investment Program (HYIP)

• HYIP is actually a type of Ponzi scheme.

• It promises unsustainably high return on investment.

• The organizer’s goal is to steal the investors’ money.

• This scam is also known as the "prime bank scam".

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18) How to Avoid High Yield Investment Program Scams

• Think before you invest in anything.

• Independently verify information about the investment.

• Be aware of business deals that shroud in extreme secrecy.

• Avoid those who promise excessive guaranteed returns.

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19) What To Do If You’ve Been Defrauded

• While prevention is the best defense mechanism against investment fraud, you can still take action.

• Action steps include the following:

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20) Put It In Writing

• The first step is to put your complaint in writing with the broker, firm, or organization you believe has defrauded you.

• This serves two purposes:

o It demands a response.

o It starts a paper trail for future reference.

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21) Contact Appropriate Resources

• Contact appropriate regulatory bodies, such as the following:

• Securities and Exchange Commission

• State Securities Regulator

• National Association of Securities Dealers

• Federal Bureau of Investigation

• Better Business Bureau

• Local district attorney

• Local Postal Inspector’s Office

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• These entities have the authority to conduct in-depth reviews and will accelerate the process.

• Be sure to provide them with concrete and factual evidence of the fraudulent activity you believe has occurred.

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22) Find Representation

• Victims of investment fraud may be eligible to recover a portion of their losses through tax deductions.

• According to Section 165 of the Federal Tax Code, taxpayers are eligible for reimbursement for losses incurred in the same tax year.

• To investigate this possibility, you will need the services of a tax resolution specialist.

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23) We Will Help You

• Contact us today for help in recovering from investment fraud.

• It is a fairly complex process that requires the expertise of certified tax professionals.

• We know the IRS’ processes and rules.

• Our highly qualified team of tax experts can help you prepare your theft loss report.

• We will work to compensate your losses.

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