According to the Federal Trade Commission (FTC), there was a 70% surge of investment scams in the second quarter of 2020 compared to the second quarter of 20191. They attributed this rise to the Corona Virus and the impacts on the economy thereafter. Investment scams claim more American money than any other income fraud and people in their 50’s and 60’s lose on average, $24,000 when involved in an investment scam2.
Unfortunately, there are people out there who look for new ways to take advantage of others. Here are some things to be aware of and some ways to combat being taken advantage of.
Cyber Fraud
The Certified Fraud Examiners say that cyber fraud is their fastest-growing concern3. Social Engineering is where a scammer may pretend to be a friend or colleague and encourages someone to open an email attachment that has a virus. Scammers, in some cases, use scare tactics like warning an individual that their computer is vulnerable to attacks and urge them to install an “anti-virus” that is a virus or malware. The virus/malware is then used to extract data to use as leverage over victims for financial gain.
Some good ways to prevent malware would be to keep your computer and software up to date, don’t trust all pop-up windows, limit file sharing and be careful about opening email attachments or images – especially if you don’t know the person who sent them.
Ponzi Schemes
A Ponzi scheme is when investors are promised high returns by the scammer, but there is no true investment. Instead, the investors give the scammer money, the scammer skims money off the top, pays one investor with the money of another investor, and the scam is sustained with continuous money flowing in that vicious cycle.
There are red flags to watch out for to not get caught in Ponzi scheme such as promises of high returns with little or no risk, returns that are consistent regardless of how the market is doing, the investment isn’t SEC or state registered, and the scamming broker isn’t licensed or registered as a seller4.
Fake CDs
When the market isn’t doing too well, scammers promise fake certificates of deposit that are alluring with higher than market interest rates and the promise of a fixed-rate return. Scammers may go as far as to create websites and advertisements that look legitimate.
To avoid buying fake CDs it is recommended to investigate who you are buying from. Even if it looks like a well-known and reputable firm following these tips will help you know if it’s a scam: Check the CD and financial institution is FDIC insured at https://banks.data.fdic.gov/bankfind-suite/bankfind or call 877-275-3342, and/or google the name of the offering institution followed by “complaint5.
High-Yield Investments
Due to COVID-19, there has been an upsurge in vaccine investments. Scammers are capitalizing on the times by hosting a “pump-and-dump” scheme. This is when a specific stock that a scammer owns (during COVID-19 this may be vaccine-related stocks) is promoted (at times the scammer will claim to have insider information) to get a lot of buyers to invest, which in turn drives up the price of the stock. The scammer then sells their stock at a far higher price than when they bought it and when the hype of the stock ends, investors lose their money6.
Community-Based Financial Scams
Another scam that can make fraudsters a lot of money quickly is by forming a relationship with a member who belongs to a tight-knit community such as military service members, seniors, small-business owners, ethnic groups, religious groups, and many more. Once that relationship is formed, they have an in with that community and use that connection to get investment referrals. The best way to avoid a fraudulent investment is to perform your due diligence no matter how much you trust a family member or friend’s recommendation. A good reference is investor.gov to see the seller’s background and license(s)7.
Social Media Scams
In recent years more than ever social media scams are prevalent. In 2020-2021 most fraudulent claims were related to government economic relief, income opportunities, or online shopping that never sent the goods. Most social media scams are done through Instagram or Facebook and it’s important to make sure that before providing any personal information, including contact information, you consult with a trusted financial advisor who can vet the investment. These scammers can delete any negative comments on their ads or posts, so it can appear as there have only been positive experiences8.
If you have any questions or concerns about an investment decision, no matter how big or small, we recommend that you speak with a trusted financial advisor, to ensure that your money is safe and in good hands.
Please give us a call at 801-465-6990 if we can help with anything!
1 Greg Iacurci. CNBC. Dec. 15, 2020. “Ponzi schemes, other investment fraud on rise during pandemic, SEC says.” https://www.cnbc.com/2020/12/15/ponzi-schemes-other-investment-fraud-on-rise-amid-pandemic-sec-says.html. Accessed Jan. 4, 2021.
2 Ibid.
3 Michael Cohn. Accounting Today. Sept. 11, 2020. “Fraud on the rise during coronavirus pandemic.” https://www.accountingtoday.com/news/fraud-on-the-rise-during-coronavirus-pandemic. Accessed Jan. 4, 2021.
4 U.S. Securities and Exchange Commission. 2021. “Ponzi Scheme.” https://www.investor. gov/protect-your-investments/fraud/types-fraud/ponzi-scheme. Accessed Jan. 4, 2021. 5 U.S. Securities and Exchange Commission. March 27, 2020. “Beware of Spoofed Websites Offering Phony Certificates of Deposit — Investor Alert.” https://www.investor. gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/beware. Accessed Jan. 4, 2021.
6 U.S. Securities and Exchange Commission. 2021. “High Yield Investment Programs.” https://www.investor.gov/protect-your-investments/fraud/types-fraud/high-yield-investment-programs. Accessed Jan. 4, 2021.
7 U.S. Securities and Exchange Commission. 2021. “Microcap Fraud.” https://www. investor.gov/additional-resources/spotlight/microcap-fraud. Accessed Jan. 4, 2021.
8 Emma Fletcher. Federal Trade Commission. Oct. 21, 2020. “Scams starting on social media proliferate in early 2020.” https://www.ftc.gov/news-events/blogs/data-spotlight/2020/10/scams-starting-social-media-proliferate-early-2020. Accessed
Jan. 4, 2021.
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