Investment scams have always been with us, but according to the Federal Trade Commission, they reached 3.8 billion dollars of losses last year which was double the amount of the previous year.

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.

And, of course cryptocurrency scams are rampant as people too often invest without knowing what they are investing in or with whom they are investing.

TIPS

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.

For detailed information about cryptocurrency scams and how to avoid them check out this link from the FTC https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams#scams

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