New types of investment scams appear every day. However, most are a variation on one of these common scams.
Exempt securities scam
Exempt securities, on their own, are not scams. They’re sold by companies that are allowed to sell the investment without filing the usually required paperwork.
The scam usually starts when you get a pitch to invest in a promising business, one that is about to offer shares to the public. You may be told that this investment is only available to very wealthy people, but an exception can be made for you—as long as you sign on the dotted line. This paperwork usually involves lying about how much money you make.
Exempt securities are risky, and you could lose all of your investment. If you have to lie about how much money you have before you can invest, you are likely taking on a risk you can’t afford.
These scams often find their victims through ads placed in newspapers or on Internet sites. The ads look legitimate and offer you an exciting opportunity to invest your money on the foreign exchange (forex) market. You’ll be told the person investing your money has a great track record and you’ll be promised a high return.
What usually happens is that your money is not invested in anything, but simply is stolen by the scam artist. Or, if your money is invested in the forex market, you may not have been told that the investment is very risky. Either way, you’re likely to lose some or all of your money.
In this type of scam, the fraudster will promise you a high return from an investment in an offshore market. They will often tell you the investment is a great way to avoid taxes. What you may not know is that once your money is sent to another country and is in someone else’s control, you may not be able to get it back. The promised high return comes with a high risk that you’ll lose your entire investment. If the promised tax savings are a scam, you could also end up owing the government money in back-taxes, interest and penalties.
If someone tells you there is a way to take the money out of your locked-in retirement account without paying tax, it’s likely a scam. In most cases, you can’t take money out until you reach a certain age. Also, there are often limits to how much money you can take out each year, and you will pay tax on the money you withdraw.
If you hear about a tax loophole that will let you access your funds early, talk to a qualified, independent tax expert before you invest.
The “pump and dump”
In a typical pump and dump scam, you receive an e-mail or phone call promoting an incredible deal on a low-priced stock. What you don’t know is that the person or company contacting you owns a large amount of this stock. As more and more investors buy the stocks, the value skyrockets. Once the price hits a peak, the scam artist sells their shares and the value of the stock plummets. You’re left holding worthless stocks.
Remember, the best way to protect your money is to be an informed investor.
- Know your investment goals
- Know what you are investing in
- Know who you are dealing with
- Know who to call for help