What are investment scams and how can you protect yourself?

Everyone wants to get rich quick, right? Spend your summers at a lakeside cabin, water skiing, and hiking, then heading to the south of France for the winter to keep your tan going year-round while drinking local wine. Lucky for you, we happen to know the Prince of Nigeria and he needs some help transferring his infinite wealth to a Canadian bank account and he will make it worth your while if you can help him out….

Unfortunately, this IS too good to be true and a story that many of you have heard before. This is far from the only investment scam going around right now and there are a number of scams that people do fall for every day, allowing these criminals to make a decent, deceitful living. A few of the popular scams going around right now are:

  • Boiler Room Fraud
    • The goal here is to sell you a stock or investment that doesn’t exist or has no chance to get you a return on investment.
  • Ponzi Schemes
    • This is a tactic where they pitch high return with little risk to investors. They use investor money to pay back previous investors, making the wealth of the company seem higher than it is.
  • Multi-Level Marketing
    • You are recruited into a no-wage, all-commission sales job where you have to buy into the company and the money you make is based on recruiting other members, not actual sales.

All of these processes may sound great at first glance but tend to lose their appeal the deeper you dig. Some people are sold penny stocks as ‘an opportunity that you couldn’t pass up,’ while the seller knew full well that whatever money you put in, you would never get back. You may also remember the large-scale Ponzi scheme orchestrated by a former financial advisor named Earl Jones. He scammed people out of money for nearly thirty years before he was caught and stole over fifty million dollars. When it comes to multi-level marketing or pyramid schemes, they typically target young people looking to make ends meet while in school. They focus on selling a product to you and then give you ways to sell it to your friends and family. They’ll entice you by offering not only a commission on items you sell but on the items people you recruit sell.

So how do you protect yourself from falling into these schemes?

  • Think critically. If it seems too good to be true, it probably is.
  • If the salesperson shows signs of extreme urgency, walk away. No investment should be made on a whim.
  • Do your research. Don’t go into anything blindly. Look into the business or stock you are investing in and see what others know about it.

By following these steps, you are protecting yourself from a wide range of investment scams simply by thinking critically. As March is Fraud Protection Month, we challenge you to slow down and think about your investments because your money is important.