Investment frauds are extremely common, especially in the stock market. After all, if the ex-chairman of NASDAQ can be charged with running a Ponzi scheme, it is difficult to trust anyone without proper understanding and assurance beforehand. With that perspective in mind, a brief but informative introduction to investment frauds could provide the basic awareness course that every investor needs to avoid most scams.
Ponzi Schemes
A huge majority of the investment frauds that are reported either follow the Ponzi scheme step-by-step or are derivatives of the original in some way. There are so many variations and applications of the Ponzi model in the world of fraudsters that it is better to concentrate on the core model rather than getting distracted by the details instead. Go through the main identifiable aspects ofa typical Ponzi scheme that we have summarized below:
- Promise of unrealistic interest rates within an unrealistically short timeframe
- The scammers will often lure investors with promises of zero risk
- It depends on paying the earlier investors for a certain time period,by taking money from new investors
- The initial investors consider the scam to be a legitimate investment after getting a few of the promised payments
- They may recruit more investors under them, due to their newfound belief, at which point it turns into a pyramid scheme as well
- A Ponzi scheme doesnot generate any money whatsoever, as no real investments are made
- After the pool of new investors dry up, the scamsters will disappear without notice and never be seen again
Differentiating Between a Pyramid Scheme and a Ponzi Scheme
There are very few differences between Ponzi schemes and pyramid schemes, which is why fraudsters will often use unaware investors to net in more investors, which is similar to how the Pyramid model works. However, if they are primarily running a Ponzi scheme, the scamsters will not make the recruiting aspect mandatory. This is what makes the Ponzi Scheme slightly harder to detect than the Pyramid Scheme.
Affinity Frauds
An affinity fraud is carried out by either using or enlisting a prominent personality within the target group. This leader or influential person within the target group might be a fully aware partner, or they could simply be the scapegoat victim of the fraud. Affinity frauds can be identified by a few typical attributes, as listed next.
- They target communities who are not fond of outside interference, especially the elderly, minorities, and other ethnic communities
- One or more of thecon artists will often be member(s) of the target group itself
- The scam itself follows the typical Ponzi or Pyramid model
Various other variants of old scams are popping up with each passing year, but at their core, the idea is to convince the target(s)that they are about to receive something that’s exclusive andthat no one else can offer but the scamsters. If you have any reason to suspect that your money is at risk in a fraudulent scam, act immediately and contact an investment loss lawyer before the company disappears. They will investigate with FINRA’s help and take the steps necessary to help you get your money back.
Scams like the Prime Bank scam keep changing the scam’s name, but focus on making people feel special by letting them in on a secret investment deal like no other. This once in a lifetime deal could be offered as a lucrative and secret Pre-IPO Investment as well. The names keep changing but the core models remain the same, and you need to always investigate a scheme properly, before investing any money into it.
