Investment scams have always been with us, but the Coronavirus pandemic has accelerated the number of investment scams through scams involving companies and promotors claiming to have effective products that can prevent, detect or cure the Coronavirus. The Securities and Exchange Commission (SEC) has suspended trading of dozens of companies making false claims related to Coronavirus related products and services as well as bringing fraud charges against a number of companies
You can use this link to see all of the enforcement actions and trading suspensions brought by the SEC. https://www.sec.gov/sec-coronavirus-covid-19-response
Recently, the financial news company Finbold published a study indicating that Australians lost 65 million dollars to investment scams in 2020 making it the number one scam in Australia in regard to total lost funds. Romance scams were a distant second place. But as I often say, “things aren’t as bad as you think — they are far worse.” It is estimated that Australians will lose 100 million dollars or more to investment scams in 2021.
Many of these investment scams are promoted on social media, emails and unsolicited phone calls. Often the investment scams are operated as pump and dump schemes. Pump and dump scams have been with us for hundreds of years, however recently they have evolved to keep pace with today’s technology. A Pump and dump scheme is most often done with low priced stocks referred to as “penny stocks.” The scammers buy low priced stocks and then artificially inflate the price of the stocks by using text messages, faxes, Internet chat rooms and other means of communication posing as people with inside information that indicates that a stock is about to rise. This prompts victims of the scam to buy the stock and temporarily inflate the value of the stock. Meanwhile, the scammers sell their stock when the stock price gets bumped up and are long gone when the stock deflates and reverts back to its true value.
Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository. This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her. You can also check with your own state’s securities regulation office for similar information. Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators. You can find your state’s agency by going to the website of the North American Securities Administrators Association. https://www.nasaa.org/investor-education/how-to-check-your-broker-or-investment-adviser/ Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators. You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular investment adviser. https://www.finra.org/investors/protect-your-money/ask-and-check
It is also important to remember that you should never invest in something that you do not completely understand. This was a mistake that many of Bernie Madoff’s victims made. You also may want to check out the SEC’s investor education website at www.investor.gov. Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours. Additionally, investing with someone merely because you trust them because you have heard them on the radio or television is dangerous. Having the same person advise the investment and control the investment is a common thread among Ponzi schemers because it enables them to falsify documents to make the investment look profitable. Generally, for additional security it is desirable to have a separate broker-dealer act as custodian for investments chosen by an investment adviser.
Australians seeking information about investments can find much useful information on the blog of the Australian Trade and Investment Commission, a government sponsored website https://www.feedspot.com/infiniterss.php?_src=feed_title&followfeedid=1349717&q=site:http%3A%2F%2Ffeeds.feedburner.com%2FAustrade
For those of you receiving the Scam of the day through an email, I just want to remind you that if you want to see the ever increasing list of Coronavirus scams go to the first page of the http://www.scamicide.com website and click on the tab at the top of the page that indicates “Coronavirus Scams.” Scamicide has been cited by the New York Times as one of three top sources for information about Coronavirus related scams.
If you are not a subscriber to Scamicide.com and would like to receive daily emails with the Scam of the day, all you need to do is sign up for free using this link. https://scamicide.com/scam-of-the-day/