Scammers are out there and they are getting better and better at what they do. Factors like the Covid-19 pandemic and lockdowns really affected people’s financial lives. Investment scams have existed for a long time but they are certainly hitting people harder in these difficult times. We’re going to look at the characteristics of 5 types of investment scams. The point is to understand these scams well enough to identify them and hopefully save money and perhaps lives.
The advance-fee scam has taken many different forms. In essence, you receive an offer for a lot of money, however, to access that money you are required to part with money or a valuable item. The catch is of course that the money or large reward does not exist. The scam works because invariably the amount offer is far larger than the small amount they ask you to part with. It has many incarnations including but not limited to the Spanish Prisoner, the Nigerian Prince, the lottery win that needs a fee to unlock it and more. You can always identify these by the combination of an unsolicited offer for a reward and the seemingly small access fee in question.
Pay to work
The pay to work scam shares a lot of characteristics with the advanced fee scam. The difference here is the reward is in the form of a job offer or some sort of employee engagement. This obviously works because people are looking for ways to make money and a job offer is a lot more believable than the fortune that the Nigerian prince promises you. This sort of scam has found great relevance on the internet especially with current circumstances. However, it traces its roots further back and many will recall the stories of people who were asked to help packing in a shop but asked to leave their phones or cash with a security person. Sadly there is no job and your cash and valuables are gone. Modern incarnations include the payment to access a platform that pays you to watch videos, the job offer that requires a processing fee for documentation and the job offer that requires a bus ticket which you can purchase remotely. These scams are not always easy to spot but if a job offer asks you to part with something first you want to make sure that it is legitimate.
The Ponzi scheme is a favourite of investment scammers. The Ponzi in its simplest form promises very high profits or returns for would-be investors. The Ponzi scheme works because they do provide those high returns at first. The providing of these returns encourages people to invest and those already invested to invest more. Unbeknownst to the investors is that firstly returns are being paid out from money being invested by people joining the scheme. The owner of the scheme will slowly or quickly withdraw money from the scheme and when they have reached their target the scheme collapses. The scam is so effective and we have seen it in many forms including Triple M and Bevern Capital. While these schemes are easy to identify they are very difficult to argue against because they pay out the returns they promise at first. Your best bet for catching out these schemes is investigating the details of the investment they purport to be involved in.
The Pyramid scheme
The Pyramid scheme is closely related to the Ponzi scheme. They largely operate on the same backbone and method but what separates a Ponzi scheme from a Pyramid scheme is the reliance or incentivisation on recruitment. Pyramid schemes will offer rewards for recruiting people to the scheme. Sometimes the rewards are immediate but it is common to find cases where the rewards are paid out over a period. The reward for investing in Pyramid schemes tends to be more realistic than the reward offered in Ponzi schemes. You can often identify these schemes because the rewards for recruiting outweigh the rewards of the purported purpose of the scheme. Pyramid and Ponzi schemes also hide behind a layer of complexity
Finally the Guru. A seemingly well to do person who has found success in a particular field such as sales, investing or some other pursuit offers courses to teach people how to be successful like them. This sounds like a valid offer on the surface. They will usually though not always show you evidence of their success. They promise to teach you the secrets of the trade and unlock ultimate wealth. All you have to do is part with a comparatively small amount of money to get their training. A lot like the access fee scam. However, what the customers receive for their “investment” ranges between nothing at all and useless information that you could find anywhere else for free. Picking these out is not easy. They talk the talk very well. You may be able to discern that the wealth they show you isn’t real but sometimes it is. The Devil is in the details though. If someone is in fact successful in something they should be able to demonstrate this to you.
With all investment scams, there will usually be an artificial sense of urgency created by the person who approaches you. They might even seem like they are in a rush and would rather move the process on that ensure your understanding. Exercise caution and only move when you are fully satisfied that it is legitimate.