Recognizing the Most Common Investment Scams

The world of investing is filled with amazing opportunities and chances to create real wealth over time. That being said, for every great opportunity and legitimate company, there is an equal amount of investment scams to watch out for. One of the reasons why investment scams are so common is that there are a lot of people who don’t fully grasp how the markets really work. Beginners to the stock market and investing are the most prone to falling victim to scams. Losing money in an investment scam is awful since it discourages people from continuing on their path towards investment success.

We want you to avoid losing your money on common investment scams, which is why we put together the following article. Below, we are going to walk you through how to recognize the most common investment scams so that you are always armed with the knowledge you need to avoid them.

1. Boiler Room Scams

One of the classic investment scams that you need to look out for is boiler room scams. A boiler room is essentially a group of people that sets up a fake office in order to aggressively sell investments to unsuspecting investors. It starts when you receive an unsolicited call from someone that is trying to persuade you to invest in a company that they are promoting. They promise huge returns and want you to wire money directly to one of their bank accounts as soon as possible.

These scammers might refer you to their company’s website, which oftentimes looks legitimate. After you invest with them, the chances are good that you won’t ever see your money again. Make sure you watch out for callers that are extremely aggressive and want you to invest in something as soon as possible. Always look for official investment disclosures and be extremely cautious if you are repeatedly receiving unsolicited calls about investments.

2. Binary Options Scams

Options are a financial security that is often misunderstood. That’s one of the big reasons why this investment scam has risen in prominence. Binary options feature a strategy that allows investors to bet on the performance of an underlying asset and either receive a predetermined payout or lose all of their initial investment. There are tons of different websites online that feature binary options trading.

What tends to happen to investors exploring binary options as a way of making money is that they find out at some point that all of the trades are rigged. When they attempt to withdraw their remaining money, they find that it is extremely difficult to do so. Sometimes the website they were using can get shut down or investors have their credit card and personal information stolen. Look out for these binary options websites or mobile applications that promise quick money and offshore options trades. These scams also use the offshore tax-free trading as a way of roping their victims in.

3. Offshore Investment Scams

One of the biggest red flags to look out for when you are considering a new investment company or opportunity is when they want you to send your money to an “offshore” account. People fall for these scams because of the tax benefits that can be had by sending your money to another country.

The truth is that you should always be skeptical of tax avoidance schemes. Uncle Sam can end up finding out and you might owe the government back tax money, interest, and penalties for trying to evade your tax bill. Also, if you send your money offshore, you are essentially forfeiting all of the protection that is offered by the US government. You might find it extremely difficult to get your money back after you send it to an offshore account. If something bad does happen, you will have little in the way of recourse to get the problem solved.

4. Pump & Dump Scams

The last common investment scam we are going to feature is pump and dump scams. This scheme usually features a low-price stock, sometimes a penny stock, that a person or company contacts you about. They want you to buy the stock since it is at such a low price, even though the stock isn’t a legitimate business.

Investors that fall victim to this scam invest money n the stock without knowing that the person who contacts you also has a huge amount of this stock. Once the price hits a peak, the scammer will then quickly dump all of their shares and keep a nice profit along with your money. Meanwhile, you are left with a worthless investment. Beware of people that are trying to convince you to buy a stock with insider information, unrealistically high returns with low risk, and unregistered sellers.