Investment scams are no laughing matter. A well orchestrated investment fraud scam can result in the loss of millions of dollars. Those coordinating these fraudulent schemes are becoming more creative and are outwitting even experienced investors.
Although there are many different types of scams, some common tricks are often used. The Consumer Fraud Research Group completed a study in 2006 to examine recordings of hundreds of scammers in action.
The researchers found the fraudsters tailored their pitches to each target. Some of the more popular tactics include:
- The "Phantom Riches" Tactic: The scammer uses promises of reaping quick and easy wealth
- The "Source Credibility" Tactic: In the aim of gaining an investor's trust, the person running the scam pretends to be tied to a reputable company or have special experience that sets them apart.
- The "Social Consensus" Tactic: Scammers will tell you that "everyone else is doing it"
- The "Reciprocity" Tactic: The person running the scam will promise to give you a "good deal" if you invest now
- The "Scarcity" Tactic: The scammer will claim that there are not many opportunities left to get in on the investment, so the investor must act quickly
Avoiding investment decisions that are rushed or seem "too good to be true" can also help investors avoid getting caught up in a scam.
The scammers who are behind these fraudulent investments are often in violation of both state and federal laws against unfair or deceptive trade practices. As a result, the victim may be entitled to a return of their investment and additional injunctive relief.
Source: Finra.org, "Avoiding Investment Scams,"
Our firm handles similar situations to the ones mentioned in this article. For more information, please visit our securities fraud misrepresentations and omissions page.