Investment scammers defrauded $8.8 billion from unsuspecting consumers in 2022, a staggering 30% year-on-year surge. Don’t fall victim to NFT, Crypto, Forex, Ponzi, or offshore scams.
Arm yourself with the knowledge to spot and dodge these sneaky schemes!
Where there’s money and markets, scammers thrive. Learn to spot and avoid scams, especially as scammers exploit the Internet to reach a wider audience. Stay vigilant against stock fraud with awareness of common investor scams.
According to data from the FTC, consumers reported losing nearly $8.8 billion to scams in 2022, marking a 30% increase over the previous year. Many of these losses stemmed from investment scams, which showed a troubling upswing.9
With the rise of cryptocurrencies like Bitcoin, Ethereum, and others, there has been an increase in scams related to these digital assets. Fraudsters often create fake ICOs (Initial Coin Offerings) or promote pump-and-dump schemes to lure investors into putting their money into worthless or non-existent cryptocurrencies.1
Cryptocurrency Scam Example
A recent example of a cryptocurrency scam is the BitConnect scam, where investors were promised up to 40% monthly returns.
The BitConnect scam gained notoriety in 2018 when the company suddenly shut down its operations, leaving investors with no way to recoup their investments. It was later discovered that the BitConnect platform didn’t have any real trading and instead used newly invested money to pay off existing investors, a classic Ponzi Scheme.
Moreover, the founders behind the scam had also used a network of YouTube influencers to promote their platform and lure unsuspecting investors into it.
As a result of this scheme, thousands of investors were left with tens of millions of dollars in losses. This is a painful reminder about how devastating stock fraud can be and should serve as a warning for all investors looking to get involved in cryptocurrency investments.
Non-fungible tokens (NFTs) are digital assets on a blockchain representing ownership of digital items like artwork, music, or virtual real estate. As with any other asset, NFTs can be subject to theft or fraud. Investors should be aware of the risks involved in investing in NFTs and ensure they take adequate measures to protect their holdings.2
NFT Heist Example
One of the most famous NFT heists happened in August 2020 when a hacker managed to steal $30 million worth of cryptocurrency from an Ethereum-based game called Axie Infinity. The hacker used a type of transaction known as a “reentrancy attack” to steal funds from wallets deposited into the game. This attack allowed them to take advantage of a bug in the game’s code, which allowed them to withdraw more tokens than they had originally deposited.
As a result, the hacker was able to walk away with over $30 million worth of Ethereum tokens. All of this shows that investing in any digital asset comes with risks, and investors need to be aware of these risks before jumping into any new investment.
Cryptojacking is a type of cyber attack where malicious actors hijack other computers’ computing power to mine cryptocurrency for themselves. Cryptojackers often use malicious software or malware to access an unsuspecting user’s computer and use its processing power for their gain without the user’s knowledge or consent.
Cryptojacking can be used to mine for any cryptocurrency but is most commonly used for Bitcoin or Ethereum.
One example of a real crypto jacking scam occurred in 2017 when malicious actors used malware to hijack the laptops and phones of unsuspecting users and use their computing power to mine for Bitcoin. The scammers targeted users through malicious advertising campaigns on YouTube, with ads that tricked users into clicking on them and downloading the malware.
Once installed, the malware would begin draining resources from the device and using it to mine for cryptocurrency. In some cases, this activity was so intense that it caused serious performance problems on the affected devices. Fortunately, the scam was eventually uncovered and stopped before too much damage was done.
To protect against cryptojacking, users should ensure they have up-to-date anti-virus software installed and regularly scan their computers for malicious code. Additionally, users should practice good security habits by not clicking on suspicious links or downloading unknown files from untrusted sources. Users can safeguard their devices and data from cryptojacking attacks by following these security measures.
These are classic scams where the returns promised to older investors are paid from the new investors’ contributions. The scheme collapses when there aren’t enough new investors or too many investors ask to cash out. An example in recent years is the case of Bernie Madoff, Jordan Belfort, or Sam Bankman-Fried. 2
Ponzi Scheme Example
Sam Bankman-Fried is a crypto tycoon and the founder of the FTX exchange. He was accused of running a Ponzi scheme in 2020 through his company, Alameda Research. The scheme promised investors high investment returns, but the money came from other investors’ contributions.
Binary Options Fraud
This involves a scammer posing as a broker or binary options platform and manipulating the software so that the trader loses money. These platforms often refuse to credit the account or reimburse funds.3
Binary Options Fraud Example
In 2017, the U.S. Securities and Exchange Commission (SEC) charged a group of binary options traders with operating an illegal scheme that had defrauded more than 1,000 investors. The perpetrators tricked unwitting victims into investing their money in fake trading platforms. Then they used deceptive tactics to get them to invest even more money, leading to significant losses for many individuals. The companies involved were called Binarybook, BigOption, and Option Rally.10
The SEC also released a warning about binary options trading in 2019, which stated that there are many fraudulent practices among binary options companies. The SEC warned people to be aware of false promises from companies offering high returns with little or no risk and those who cold-call potential investors.
Foreign exchange market scams have been on the rise in recent years. They typically involve high-pressure sales tactics, unrealistic promises of high returns, and unregistered brokers.4
Forex Scam Example
One example of a forex scam involves a company that offers to manage customers’ investments in the foreign exchange market. The company promises high returns without risk but often does not provide proof or evidence of its claims. Furthermore, the company may be unregistered and operating illegally without proper regulation. Ultimately, this can lead to serious losses for those investing their money in these companies.
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Social Media Scams
Social media scams have become increasingly popular in recent years due to their ability to reach a large number of people quickly and easily. These types of scams are typically perpetrated through accounts on social media networks, such as Facebook, Instagram, or Twitter.
Social Media Scam Example
Ismail Elmas, better known as Jay Mazini on Instagram, was a social media influencer who built a following of over 1 million people by posting videos of himself generously giving money away. He used his platform to perpetrate an investment scam.
Elmas offered to buy Bitcoin from his followers at prices above market value, claiming traditional exchange platforms were limiting how much he could purchase. His victims would send Bitcoin to his digital wallet, expecting payment through wire transfer. However, the funds never arrived.
In total, he defrauded victims out of approximately $2.5 million worth of Bitcoin before his activities caught the attention of authorities. In March 2021, Elmas was arrested and charged with wire fraud. This case is a prime example of how scammers can misuse their influence on social media to defraud unsuspecting followers.14
Advance Fee Fraud
In this scam, investors are asked to pay a fee upfront to participate in investment opportunities that promise high returns. After paying the fee, the investor never hears from the scammer again.5
Advance Fee Fraud Example
In the case of the Canadian Lottery scam, victims received a letter informing them that they had won the Canadian lottery. Even though they never entered the lottery, the letter seemed genuine, with an official-looking check covering the taxes and fees associated with claiming the prize.
However, the catch was that the “winners” were instructed to deposit the check into their bank account and then wire the money to cover the supposed taxes and fees. Once the money was wired, the victims discovered that the check they had received was fake, and any money sent was lost.
In 2018, a significant operation of this kind was brought down by U.S. authorities. Over a dozen individuals across the U.S. were charged for their roles in the scam, which targeted mostly elderly Americans and caused tens of millions of dollars in losses.11
Pump and Dump Scams
These scams involve artificially inflating the price of a less popular stock through false and misleading positive statements to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their overvalued shares, the price falls, and investors lose their money.6
Pump & Dump Scheme Example
One example of a pump and dump scheme in the last five years is the case involving businessman Maksim Zaslavskiy.12
In 2017, Zaslavskiy launched two Initial Coin Offerings (ICOs): REcoin Group Foundation and DRC World (also known as Diamond Reserve Club), claiming they were backed by real estate and diamonds. However, these claims were false; no real estate or diamonds were backing these coins.
Zaslavskiy used aggressive marketing techniques and fraudulent claims to pump up the value of the cryptocurrencies, raising over $300,000 from investors. After artificially inflating the value of these assets, Zaslavskiy sold off his holdings, causing the value of the coins to plummet and leading to significant losses for investors.
In 2019, Zaslavskiy pled guilty to conspiracy to commit securities fraud. This case was notable as it was one of the first times securities laws have been applied to cryptocurrencies in the United States.
Video: Pump & Dump Newsletter Scams
High-Yield Investment Programs (HYIP)
Unlicensed individuals typically run these unregistered investments and are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor.7
High-Yield Investment Program Scam Example
In 2018, a California man Sean Grusd was charged with running a $30 million high-yield investment program scam. The defendant promised his investors that he would invest their money in cryptocurrencies and predicted up to 500% returns. In reality, the defendant simply used the investments to pay himself lavish commissions and line his own pockets.13
Offshore scams often involve offshore investments, such as investing in a foreign-based company. Offshore scams are attractive to investors because they offer the potential of high returns with little risk – however, these investments can be extremely risky, and losses are not easily recovered.
Scammers operating in one country will set up scams in another, often targeting wealthy individuals. They promise high returns and tax benefits if the victim moves their money abroad.8
Offshore Scam Example
In 2019, a California man was charged with running an $11 million offshore scam. He promised investors high returns in investments in foreign companies such as banks and real estate. In reality, the defendant simply used the investments to pay himself lavish commissions and line his own pockets.
Beware of scams involving sending money to another country or investing in an offshore company. Be sure to research any investment thoroughly before making a decision.
If an investment opportunity sounds too good to be true, it probably is. Always do your research and consult with a trusted financial advisor before making any investment.
Liberated Stock Trader was founded for the single reason to empower people to invest their own money through education, so they can avoid scams and frauds.
What is a scam?
A scam is a fraudulent scheme or activity that results in financial loss to an individual, business, or government. Scams can take different forms, such as pyramid schemes, Ponzi schemes, or other types of fraud.
How do I recognize signs of a potential scam?
Warning signs that may indicate a potential scam include promises of quick and easy profits with little risk, requests for personal information such as bank account numbers or Social Security numbers, and offers from people you don't know who appeared out of nowhere. If something sounds too good to be true, it likely is.
Are all investing scams illegal?
Not necessarily. While some investment scams are illegal, others may not be against the law but could still involve unethical practices or be risky investments with the potential to lose money.
How can I protect myself from investment scams?
The best way to protect yourself from investment scams is to thoroughly research any offer before making any decisions. This includes researching the company and its principles, understanding the offer terms and ensuring that it meets your expectations for risks and rewards. Also, keep records of any communications related to investments and stay up-to-date on recent news about companies you're considering investing in.
What should I do if I suspect an investment scam?
If you suspect that an investment scam may have targeted you, contact your local law enforcement agency immediately. You should also contact the Securities and Exchange Commission (SEC) or other regulatory body applicable to your area with details about the situation so they can investigate further if needed.
Are there certain types of investors most vulnerable to scammers?
Unfortunately, anyone could fall victim to an investment scam, but those unfamiliar with investing in general may be particularly vulnerable since they often lack knowledge about how legitimate investments work. Seniors are also frequent targets because scammers often target seniors under pretenses and promise them high returns on their investments without taking the time to explain potential risks associated with their investments.
What kind of information do scammers use when targeting investors?
Scammers often collect personal information through social engineering tactics such as identity theft or phishing emails to gain access to someone's finances or take advantage of them financially. They may also target people based on their race, religion, or gender by offering deals tailored specifically for people in those communities or using language designed to appeal to them in particular ways.
Is it possible for scammers to steal funds directly from myaccount without my knowledge?
Yes, this is possible depending on how much information a scammer has access to about the person they are targeting and what type of accounts they have access to (such as online banking accounts). Even if someone does not give out their account information directly, a hacker or malicious actor can gain unauthorized access if they know enough details about an individual's account, such as usernames and passwords.
What kinds of losses can investors suffer due to investing scams?
Investors can suffer both financial losses from investing in fraudulent products or services as well as emotional distress due to feeling like they were taken advantage of by unscrupulous actors.
- Source: https://www.ftc.gov/news-events/news/press-releases/2023/02/new-ftc-data-show-consumers-reported-losing-nearly-88-billion-scams-2022
- Source: https://www.firmex.com/resources/uncategorized/10-famous-investment-scams/
- Source: https://www.investopedia.com/investment-scams-rise-7113136
- Source: https://www.ft.com/content/c02a6d68-c58a-4b98-9294-bd2f382d5b40
- Source: https://www.sec.gov/investor/alerts
- Source: https://www.cnbc.com/2022/02/22/consumers-lost-5point8-billion-to-fraud-last-year-up-70percent-over-2020.html
- Source: https://www.tn.gov/attorneygeneral/working-for-tennessee/consumer/resources/materials/investment-scams.html
- Source: https://www.finra.org/investors/insights/recovering-from-investment-fraud
- Source: https://www.ftc.gov/business-guidance/blog/2023/02/ftc-crunches-2022-numbers-see-where-scammers-continue-crunch-consumers
- Source: https://www.justice.gov/criminal-vns/case/united-states-v-lee-elbaz
- Source: https://www.justice.gov/opa/pr/justice-department-coordinates-nationwide-elder-fraud-sweep-more-250-defendants
- Source: https://www.justice.gov/usao-edny/pr/brooklyn-businessman-sentenced-18-months-imprisonment-defrauding-investors
- Source: https://chicago.suntimes.com/2023/5/16/23723980/grusd-sean-bernie-madoff-john-stafford-patrick-buck-scam-fraud-23-million-scam
- Source: https://www.justice.gov/usao-edny/pr/instagram-personality-known-jay-mazini-pleads-guilty-wire-fraud-wire-fraud-conspiracy
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