2 Common Types of Investment Fraud

If you are like most Americans, you have invested money at some point over the years. Unfortunately, that can make you vulnerable. According to a 2016 study, 10% of U.S. investors experience investment fraud. But what is it?

In short, investment fraud involves deception: someone gives false information that leads others to invest money in a certain way. The investment is a sham, and in general, everyone but the scammer loses their money. Here are two types of investment fraud.

Ponzi schemes

In a Ponzi scheme, a fraudster promises to invest your money in a vehicle that will deliver high returns quickly. You get a few payments early on to prove how solid the investment is, which may encourage you to invest more. In actuality, there is no real investment vehicle, and your supposed dividends are actually money from new investors. The scammer uses the bulk of the money for personal gain. You may get back a fraction of your initial investment or you may lose it all.

Social media scams

If you receive unsolicited stock tips via email or social media, beware. One common fraud involves manipulating the stock markets, also known as “pump and dump.” Fraudsters claim they have inside information that a certain stock is about to skyrocket. When enough investors believe it and invest, the stock does indeed go up in price. At that point, the scammers dump their shares at the higher price, causing the stock to decrease in value.

Scammers can create slick websites and believable sales pitches; it is no wonder they defraud many investors. If you experience investment fraud, take action. You should not suffer due to a scammer’s unethical behavior.

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