It’s no surprise that investment fraud is common, since investments can often be complicated and difficult for people to understand. According to the Federal Trade Commission (FTC), in 2022, consumers reported losing more money to investment scams than any other category, adding up to a whopping $3.8 billion. 

Here’s everything you need to know about investment scams.  

What is an Investment Scam?

An investment scam is when somebody tries to trick you into buying a fake investment, such as stocks, bonds, currencies, or even real estate. Scammers will often lie and pose as professional investors or financial advisors to gain your trust.

How Do You Identify an Investment Scam?

Scammers lure people in by pitching lucrative opportunities with little to no risk. Often, they will stress the urgency of an investment opportunity to prevent you from running it by a trusted advisor first. They will continue to play into this urgency by making it seem like you’re missing out. For example, scammers will say things like, “400 people have already invested! This is your chance to win big,” and may even provide you with fake testimonials from clients to validate the credibility of their work and services.

What Are the Different Types of Investment Scams?

While there are a variety of investment scams, here are the most common ones.

• Real Estate Investments: Real estate investment schemes are sold to buyers as short-term loans, construction loans to companies, or as shares in a building that will eventually earn income and a lucrative payout. The property value for these schemes is often exaggerated to attract investors; other times, there is no property. Once you invest, communication dwindles or stops altogether.
• Cryptocurrency Investments: After Bitcoin became popular in 2017, scammers found this as another avenue to take advantage. A fraudster may claim to place an investor’s money in a proprietary crypto asset trading platform, like Coinbase or Robinhood, while promising guaranteed, high returns with little or no risk. Once someone has invested their digital currency, the fraudster may stop communicating with the investor and transfer the currency to another account or overseas.
• Ponzi/Pyramid Schemes: Made famous in the United States by Charles Ponzi, these scams promise high investment returns. Each participant is encouraged to bring in new investors, but there is no actual investment or fiscally rewarding result. Investors’ money is used to pay out returns to those drawn into the scheme to create the appearance of a worthwhile investment. The only people who make money are those who take money from the scheme. A telling sign of an investment scheme is if people talk about pooling your money together with other investors or if there is an exclusive membership attached.
• Pig Butchering: A new and recent scam, referred to by many as “pig butchering,” is when a scammer creates a fake profile and reaches out to potential victims through text message, social media, WhatsApp, Tinder or other dating sites. These individuals identify themselves as an incorrect number or an old acquaintance with the goal of befriending the person they want to trick into an investment scheme. The new friend will slowly convince their target to invest in cryptocurrency or another asset and then refer them to a fake website or app that looks authentic but is controlled by the scammer. Victims are encouraged to invest small amounts initially, and the scammer will post a modest gain on the investment. Over time, the victim is persuaded to invest larger amounts of money, which are then stolen. 

What Do You Do if You Are the Victim of an Investment Scam?

If you believe you are the victim of an investment scam, you should immediately contact your bank and consider changing your credit card number and banking credentials depending on the stolen information.

Additionally, you should report the fraud to the Federal Trade Commission (FTC) and consider filing a police report. The FTC report will enter the fraud into the Consumer Sentinel Network, so law enforcement can stop ongoing fraud and track these crimes. The police report will initiate a criminal investigation of your case.

Information to Gather Before Reporting the Scam.

• The fraudster’s information including name, phone number, email address, etc.
• A timeline of events
• A copy of your credit report, if an account/loan was opened in your name
• Any and all communication between you and the scammer

Ultimately, anyone can be the target and victim of an investment fraud scam. While investing is a significant way to build wealth, you should always consult a trusted professional before providing anybody — especially an unknown online source — with your confidential information.

If you believe you’ve been targeted in an investment scam, contact our Fraud Prevention department at 1-800-964-3444. To learn more, visit the Fraud Prevention page at efirstbankblog.com.

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