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Common investment scams

09 August 20226 mins read by Angel One
Common investment scams
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Common investment scams

Financial markets have always been home to some of the most cunning scamsters, who profit off the naivety of unsuspecting investors. In this article, we discuss some common investment frauds.

  1. Fee advance fraud

The victim is enticed to spend money upfront to take advantage of an offer that promises much more in return. The catch is that the fraudster takes the victim’s money and disappears.

Scammers frequently target individuals who have suffered a loss on a high-risk investment. They will call the investor and offer to assist them in recouping their losses. They may state that they will purchase or exchange the investment at a significant profit, but the investor must first pay a “refundable” charge, deposit, or taxes. If the investor provides further funds, they will forfeit those as well.

  1. Scam involving a boiler room

Investment scams are frequently perpetrated by a group of persons operating out of a makeshift office dubbed a “boiler room.” To reassure you that their company is legitimate, they may direct you to the company’s website, which appears to be exceptionally professional. Additionally, they may establish a toll-free number and a reputable location to establish the company’s legitimacy.

The corporation, on the other hand, does not exist. The website is a forgery, and the office is merely a post office box or temporary location. By the time one realizes they’ve been scammed, the fraudster will have already closed shop and moved on to the next victim.

  1. Scheme for a Recovery Room

Victims of earlier schemes are victimized again in a recovery facility. They are offered excessive rates for shares they previously purchased through a boiler room operation. The investor is urged to wire an additional sum of money to an offshore bank account as part of a commitment to buy their shares at a profit. The criminals withdraw the funds, and the investor is once again left out of pocket.

  1. Forex heist

The foreign exchange (FX) market is widely regarded as the world’s largest liquid financial market. Investors buy and sell currencies to profit from currency exchange rate fluctuations. However, trading foreign currencies can be quite dangerous. Forex advertisements frequently claim easy access to the foreign exchange market via courses or software. However, foreign exchange trading is dominated by giant, well-capitalized international banks with highly qualified staff, cutting-edge technology, and substantial trading accounts. It’s exceedingly difficult to defeat top professionals consistently. You may not be informed of the danger involved in FX trading.

Additionally, specific forex trading techniques may be unlawful or deceptive. Because forex trading services are frequently provided online from a different nation, unregulated organizations may be marketing their services in violation of the rules. Your money may not be invested as promised, and you may be required to move funds to an offshore account before trading, which will render the funds unreachable. You stand to lose a significant chunk or all of your money in any of these situations.

  1. Scam of offshore investing

This fraud promises enormous returns if you transfer your funds “offshore” to another country. Generally, the objective is to avoid or minimize taxes. Consider tax evasion strategies with caution — you may end up owing the government money in back taxes, interest, and penalties.

There are additional dangers associated with offshore investing. If you transfer money to another nation and something goes wrong, you may not be allowed to pursue your case in court.

  1. Pump and dump scam

Scammers use lists of potential investors to pitch a fantastic offer on a low-priced stock in these schemes. You may be unaware that the individual or firm contacting you also owns a substantial quantity of this stock, which may not represent a legitimate business. As more investors purchase shares, the stock’s value rapidly increases. Once the price reaches a peak, the fraudster sells their shares, resulting in the stock’s value plummeting. You are left with worthless securities.

  1. Pyramid or Ponzi scheme

These schemes recruit participants via advertisements and e-mails that promise everything from earning a living working from home to turning Rs. 1000 into Rs. 100000 in as little as six weeks. Alternatively, you may be offered an opportunity to join a select group of investors who will profit handsomely from an attractive investment. The invitation may even come from a familiar face.

Investors who enter the scheme early may begin receiving huge returns from what they believe are interest payments quite quickly. They are frequently so satisfied that they increase their investment or persuade friends and family to become new investors.

However, there is no investment. The “interest cheques” are paid using the investors’ funds and those contributed by new investors. Eventually, new participants withdraw from the system. There is no additional money to pay, and you will never see another cent. That is when the promoters will vanish with the money.

  1. Real estate scam

Real estate schemes are sold to buyers as short-term loans, businesses as construction loans, or even as shares in a building that generates money and pays it out to investors. Scam artists promise investors a guaranteed rate of return on a tangible asset such as real estate.

How Does It Function?

While many people purchase real estate as a personal investment or a residence, real estate is occasionally sold as a security. These are sales in which the purchaser does not own or live on the property but may receive a profit from the efforts of another party in connection with the property.

Illegitimate schemes are frequently marketed aggressively through advertising (advertisements disguised as news items) that promise investors ample riches in a matter of years. Investors contribute to a fund that is used to acquire and hold real estate. Frequently, investors are charged exorbitant fees and receive scant information or disclosure of hazards.

Occasionally, the property value is overstated to attract investors in illicit enterprises; there is no property at all in other instances. As is the case with several other scams, communication deteriorates or ultimately ends once you invest.

Watch for these red flags:

  • Promises to help you “become rich quick” or live the retirement of your dreams with passive income from real estate.
  • There is a deficiency in the documentation or disclosure of a real estate investment or loan.
  • Unregistered company or investment that has not submitted a prospectus with a securities authority.
  • Promoters who are not securities regulator-registered.
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