The truth is, when someone finds a convenient way to use the internet, someone else finds a way to use it for bad. So, when people figured out how to invest online, scams followed. There are rump-and-dump schemes, cryptocurrency fraud, and more.
Here’s how it sometimes happens.
- Emails are cheap to send. And since it’s part of our everyday routines, it’s an easy way to get people to see their “investment ideas”.
- Websites are also relatively simple and affordable to produce. So, fraudsters create them to lure people to read their “inside” or “secret” information about a company’s results or new products.
- Investment newsletters are yet another illegal way to have promoters hype specific stocks.
All of these scams prey on people who want to make money fast and furious. So, criminals set up elaborate hoaxes to get those people to invest without vetting the actual investments. Another reason these scams work is that victims tend not to report fraud because they’re embarrassed they got taken.
Using the Internet Wisely
It is always important to get the facts before making any investment:
- Never make an investment only based on what you may have read in an online newsletter or from an online bulletin board posting.
- Be wary of small or thinly traded stocks you read about on the Internet.
- Beware of companies that do not file regular reports with the Securities and Exchange Commission.
- Check that your supposed investor advisor has a license and doesn’t have a history of disciplinary problems. It happens.
- Be wary of offshore investment ideas, especially if they involve some form of tax avoidance.
- Do not be lured by promises of fast or high returns with no or very little risk.
- Be careful with opportunities in alternative investments like commodities, real estate, coins, artwork or gemstones.
- If you see words like “guarantee, high return, limited offer or safe as a CD”, run away.
Common Types of Internet Investment Scams
The Securities and Exchange Commission reports that most Internet scams have followed the same formats for years. Here is a portion of an article from the SEC’s website:
The “Pump and Dump” Scam
Commonly, online messages urge readers to buy or sell stock quickly because they have the “inside track” on an investment. Really, they’re often insiders or paid promoters who gain by selling their shares after the stock price is pumped up by gullible investors. Once they sell their shares and stop hyping the stock, prices fall and real investors lose money. Fraudsters use this ploy with small, thinly-traded companies because it’s easier to manipulate a stock when there’s little or no company information available.
Crypto is shiny and new. But with new investments, come new scams. Most investors don’t understand the technical aspects of cryptocurrencies. So, criminals deliver jargon that delivers nothing but false promises.
The “Risk-Free” Fraud
Equal to the statement “there’s no free lunch” is there’s no such thing as “exciting, low-risk investments”. Maybe you’ve seen the wireless cable projects, prime bank securities, and eel farms over the internet. Again, no investment is risk-free. Often, the investment products touted don’t exist. They’re just more scams.
Offshore scams used to be harder to pull off. Conflicting time zones, differing currencies, and the high costs of international telephone calls and overnight mailings made it tough for scammers to target U.S investors. With the Internet, those obstacles were no longer a problem for criminals because it’s difficult for U.S. law enforcement agencies to investigate and prosecute foreign fraud.
We’re all looking for opportunities, but in today’s world, you must ask questions and do some research if you want to avoid becoming the victim of a scam. It’s easy to get caught up in something that sounds like a great deal but is really just a hoax to rip you off. Good investments take time and research. Make sure you take the time to ask thorough questions, get other opinions, and do some research. You can also contact our financial advisors if you have any questions about potential investments.
© Fintactix, LLC 2022