How to Spot an Investment Scam

You should be very careful with investment schemes, which claim to provide high returns with little or no risk. Some of these schemes are known as a Ponzi scheme and others as a pump and dump scheme. The first sign of a scam is an unrealistic claim that promises a large return with little risk. Be aware that investment schemes come in many shapes and forms, so read the terms carefully and beware of any promises of high returns.

Ponzi scheme

A Ponzi scheme investment scam is a fraud that aims to defraud investors by offering them a steady stream of returns with minimal risk. The term is named after Charles Ponzi, who was a master swindler. Although his scheme was first documented in 1920, the first instances date back to the mid-1800s. These early examples were orchestrated by Adele Spitzeder in Germany and Sarah Howe in the United States. The methods of these scammers were described in two novels by Charles Dickens.

This type of investment scam typically involves investments that are not registered with the Securities and Exchange Commission. These unregistered investments are riskier than registered investments, and investors should be wary of such offers. These investments often fail to pay out promised returns, and the promoters disappear with the rest of the investor’s money. This can lead to a liquidity crisis that can cause panics or even a bank run.

To avoid falling victim to this scam, it’s important to check whether the scheme is regulated by the Securities and Exchange Commission (SEC). A registered company will have an accreditation with the SEC, and the company will not sell unregistered securities without gaining accreditation. However, if the investment is not registered, it’s likely to be a Ponzi scheme investment scam.

The RIAA’s investigation into Ponzi schemes has led to an arrest of a prominent businessman. The financial firm Evergreen Investments is a prime example of a Ponzi scheme. The company promised investors a high return and professional insurance. However, this was not a legitimate investment firm and the operators took millions of dollars from investors.

Another example of a Ponzi scheme investment scam is Uber. The company uses investor funds to acquire new customers. The money is then used to subsidize rides for users. The company has more than 110 million users worldwide and is a popular platform. It is a Ponzi scheme, and many people have suffered losses.

Devin Persens allegedly ran a Ponzi scheme and lured investors into his scam. He promised investors a 20%-30% return on their investments. He also offered investors diamonds and properties to invest in.

Pump-and-dump scheme

Pump-and-dump investment scams typically occur in two stages: the pump segment begins with a legitimate cryptocurrency. A pump-and-dump investment scheme will usually target a cryptocurrency with a low volume and small market cap. Once the price increases significantly, the scammer will signal for the asset to be sold at a price that will benefit him most.

The first stage of a pump-and-dump scheme entails manipulating the market to buy up a financial asset at a low price. The manipulator will spread a false sense of optimism about the asset, usually by using false news. The price will then rise, as more investors pile in. The second phase is the selling wave, which will push prices back down to the pre-pumping level.

Another stage of the pump-and-dump investment scheme involves selling shares at a high price. This is done through a “pump” advertisement. The price will rise at one point, then drop again. The scammer will often advertise a stock in which the price has dropped sharply after the first day of trading.

A pump-and-dump investment scam occurs when a company’s stock price has surged because of rumors or untrue information being shared. In the classic pump-and-dump scam, a scammer buys a low-priced stock, spreads the false information, and then sells it when the price reaches a high point. The GameStop example is not a classic pump-and-dump investment scam, but it does illustrate the concept. The current highs in GameStop are unlikely to last, and some investors may be left with shares that are worth less than they initially invested.

Pump-and-dump investment scams have a long history in Hong Kong, but they are not restricted to Hong Kong alone. Hong Kong’s Securities and Futures Commission has strict laws against manipulating the stock market. If found guilty, scammers face fines of up to HK$10 million or 10 years in prison. Hong Kong-based fraudsters target the Hong Kong and Macau markets. One recent case involved a Macau project manager who lost HK$3 million. His hopes of buying a house and expanding his wife’s business were dashed. Meanwhile, in Singapore, a man lost HK$20,000. He has been left wondering how he got so duped.

In a pump-and-dump investment scheme, a scammer approaches a small group of people and promises outsized returns. Typically, the investors in the group are asked to pass on the investment information to other members of the group. The scam spreads quickly because of the trust involved in the introduction. These scams are a form of social engineering, and they destroy groups and communities. Therefore, it is essential to do a background check on any investment representative. In addition, be wary of high returns that are achieved over a short period of time.