Common investment scams
Seniors are often targeted by scammers, especially with telephone calls. Warn the senior person in your family to avoid high pressure or frequent callers who are trying to sell investments that could be risky or fraudulent.
Ponzi or Pyramid Schemes. The promoter promises huge profits and uses money provided by later investors to pay off earlier investors. Eventually the scheme collapses and many investors lose their money. Watch out for promises of unrealistic returns.
Boiler Rooms. Scammers call from telephone banks ("boiler rooms") to promote investments like penny stocks (low-priced or "micro-cap" stocks) that may be worthless or that may be offered at inflated prices. To avoid such scams, check out the broker, get a written prospectus, and ask questions. Some of these callers are brokers with disciplinary records - or have even had ties to organized crime.
Pump and Dump Penny Stocks. The con artist buys up a quantity of penny stocks and then falsely promotes the stock to investors through phony hot tips in websites, emails, voice messages, and other communications. After the stock price has been driven up (the "pump"), the promoter then sells his or her shares (the "dump"). The stock price crashes and investors lose their money.
Exotic or Off-Shore Foreign Investments. People have lost big sums buying shares in ostrich farms, oil and gas ventures, precious metals, mines, or unregistered foreign investments. Some of these investments are promoted as a way to avoid income tax. Buy only legitimate investments and stick with mainstream investment channels: for example, real international stocks can be purchased through mutual funds. Avoid "adventures" when investing your money. Go ahead, be boring.
Promissory Notes. Promissory notes are investments that offer above-market, fixed returns. While some are legitimate, some are fraudulent and worthless. Watch out for promises of unrealistically high returns.
Fraudulent Bank or Currency Investments. Scammers promise very high returns for investing in fraudulent bank or currency related investments. In the past, a con artist would call this a "prime bank" investment and mention foreign banks that may not exist. More recently, this fraud has been called a "risk-free guaranteed high yield investment" or some similar name, and banks are not mentioned as often.
Advance Fee Stock Purchase Scams. Con artists contact investors and offer an unrealistically high price for a stock or other investment that the investor owns. To ensure the sale the investor is asked to pay a large advance sum of money as a deposit or transaction fee. It's a scam - the purchase does not happen, and the investor loses the advance fee.
Fake Promises of Initial Public Offerings (IPOs). Sometimes investors want to take advantage of an early chance to buy a stock when it is first being offered to the public. Scam artists may try to obtain advance fees in return for the supposed right to buy stock as an early insider. Avoid such offers.
"IRA or IRS Approved" Investments. The promoters claim you can roll over your IRA investment into a supposedly more profitable investment, often in a fancy sounding industry. They may claim the plan has the approval of the IRS or another government agency. This is a clear sign of fraud - avoid all such offers.
Investments in Fraudulent Businesses. Bogus offers may involve work-at-home opportunities, make unrealistic earnings claims, or require big advance fees. Be cautious - many such schemes are frauds.
If it seems too good to be true - it could be a scam!
If you are promised very big profits in a small amount of time, it might be a scam. Con artists may also pretend to have special knowledge or authority, claim that many others are investing, or offer a limited time deal. Watch out if you encounter high pressure to buy.
Ask questions and check the offer with BBB and financial authorities. If you think you were scammed, be sure to report it. See details in the Resources section.