Protect Yourself Against Online Investment Scams

Almost as soon as investment opportunities hit the Internet, so, too, did investment scams. And from the traditional pump-and-dump schemes to cryptocurrency frauds, investment scams show little sign of subsiding.

While the internet is a convenient platform to communicate with investment sources and investigate opportunities, it remains a popular place for scam artists to find victims:

• Phony emails promoting investment ideas can be sent to millions of people very cheaply instead of cold calling over the phone or using regular mail.
• Fraudsters can lure investors by building websites designed to promote a stock with ‘inside’ or ‘secret’ information about a company's results or new products.
• Investment newsletters claiming to provide honest and unbiased advice have become popular as illegal vehicles for some promoters to hype specific stocks.

Scammers now seem to routinely pop up with promises of early access to the ‘next big thing.’ Some investors, caught by a desire to make a fast buck, forward funds without the proper due diligence.

It is critical to think before you act. Do your research and be sure you’re working with a credible source who you can trust. Remember that investments should be made for the long-term in accordance with your financial plan. You work too hard for your money to see it snatched away by an internet hoax.

Using the Internet Wisely

It is always important to do your research and get the facts before making any investment:

• Never make an investment only based on what you may have read in an online newsletter or posting.
• Be very wary of small or very 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 investment advisor is credentialed, experienced, and acting as a fiduciary on your behalf.has a license and does not have a history of disciplinary problems.
• Be wary of offshore investment ideas, especially if they involve some form of tax avoidance.
• Do not be lured by promises of high returns with ‘no risk’ or ‘very little risk.’
• Be suspicious of promises of a fast return.
• Be cautious of 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,’ be very careful.

Common Types of Internet Investment Scams

The Securities and Exchange Commission (SEC) reports that most Internet scams follow the same formats that have been around for years. Here is a portion of an article from the SEC's website:

The "Pump and Dump" Scam

It's common to see messages posted online that urge readers to buy a stock quickly or tell you to sell before the price goes down. Often the writers will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. They may be insiders or paid promoters who stand to gain by selling their shares after the stock price is pumped up by gullible investors. Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose their money. Fraudsters frequently use this ploy with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company.

Cryptocurrency Offerings

As a new asset class, cryptocurrency offers new legitimate investment opportunities as well as scams. “Pig Butchering” is a common cryptocurrency scheme where victims are fed storylines and false information to gain confidence. Because most investors don’t understand the technical underpinnings of cryptocurrencies, it’s easy for people to be taken in by complex jargon and the often-false promise of attractive returns.

The "Risk-Free" Fraud

"Exciting, Low-Risk Investment Opportunities" to participate in exotic-sounding investments – such as wireless cable projects, prime bank securities, and eel farms – have been offered through the Internet. But no investment is risk-free. And sometimes the investment products touted do not even exist – they're merely scams. Be wary of opportunities that promise spectacular profits or "guaranteed" returns. If the deal sounds too good to be true, then it probably is.

Off-shore Frauds

At one time, offshore schemes targeting U.S. investors cost a great deal of money and were difficult to carry out. Conflicting time zones, differing currencies, and the high costs of international telephone calls and overnight mailings made it difficult for fraudsters to prey on U.S. residents. But the Internet has removed those obstacles. Be extra careful when considering any investment opportunity that comes from another country, because it's difficult for U.S. law enforcement agencies to investigate and prosecute foreign frauds.

At the end of the day, staying vigilant is the best defense. Skepticism and common sense should play large roles in evaluating investment ideas found on the Internet. Working with a Wealth and Investment Advisor can help you stay informed, add comprehensive security measures, and reduce the risk of fraud.

Remember, if you suspect fraud, contact your bank immediately.