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How to spot an investment scam

How to spot an investment scam

Despite news coverage of pyramid schemes and computer-based scams in recent years, investment cons remain a real threat. Learn how to spot and avoid them, wherever they come from.

The cheap share trick

Investment scammers will use every tool at their disposal to try and trick people out of their money. So-called 'boiler room' scams, often set up abroad, involve sales people calling up on the phone. They try to hustle the unwary into investing in a scheme or buying shares in a company, with promises of a quick return.

Because the shares are in real companies, there is an air of respectability about the deal. And, if enough people buy shares in one company, the stock price will actually rise. However, the scammers will have bought their shares beforehand, when they were dirt cheap, and will sell when they make a tidy profit.

They'll stop calling people up about that company, and the share price will crash back down, leaving real investors with nothing. 

A similar and more efficient trick is to try the same ploy via email or popular online forums. They send millions of messages about some 'brilliant' penny stock that is currently undervalued. If the message manages to get past your spam filter and you unwisely invest, they will pull the same trick. Since they are in another country, they face little risk of prosecution.

Fake banks and deals

Another common email trick can come from a 'friend', usually via a hacked email account, or an email address similar to someone you know.

They claim that they are investing in some foreign currency, an oil or other deal, that will bring in millions, but you only have hours left until the investment deadline. If you're tempted and rush in, you will lose your money to whatever foreign bank account you send it to.

Alternatively, the message could claim that they have money for you from some 'old scheme' you or your family once invested in. Send them your real bank details and the scammers will soon clean that out for you. 

The advance fee scam

This scam covers a range of schemes, offering you access to valuable shares, investments or property. They all offer rich rewards, and are usually very hard to come by, which should alert you as to the implausibility of the offer. The trick is that you need to pay a large fee to get on-board with the scheme. Once you pay that money, you will never see it, or hear from them, again. 

Since the financial markets are so complicated, there are many ways that scammers can tempt the regular public with impressive sounding deals.

Many claim to be able to get you cheap shares in big-name companies that are about to go public. Or, they could appeal to your cultural side, claiming that 'you too could own art from someone guaranteed to be the next Banksy', or William Turner, if you prefer. But, these schemes all end up with them taking your money, and you getting something worthless.