The Guide About Online Investment Scams

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June 4, 2024
6 min

The Guide About Online Investment Scams

In recent years, there has been a noticeable increase in the number of online investment scams, as scammers have learned to take use of digital channels to trick vulnerable people. Over $4.6 billion in fraud damages in the US were caused by investment scams alone in 2023, a 21% rise over the previous year. These scams frequently use social media posts, complex fake websites, and misleading marketing to trick victims into falling for their minimal risks and big return promises.

Scammers use a variety of strategies, such as fabricating financial dashboards that look legitimate, establishing credibility through social engineering, and hiding their tracks with cryptocurrency's anonymity. Because of this, the average loss per victim has increased dramatically, with some people suffering losses of tens of thousands of dollars. The increasing number of these frauds highlights the critical need for improved cybersecurity measures and raised public awareness in order to prevent prospective investors from becoming victims of these dishonest schemes.

Investment Scams Statistics

  • Internet Crime Complaint Center (IC3) reported "losses to investment scams rose from $3.31 billion in 2022 to $4.57 billion in 2023, a 38% increase".
  • Investment scams accounted for a third (33%) of all money lost to scammers by Barclays current account customers in 2023, up 23% year-on-year.
  • The Federal Trade Commission (FTC) received fraud reports from 2.6 million consumers in 2023, with investment scams resulting in the highest median losses of $7,700.
  • In the first six months of 2023, more than half the money reported lost to fraud on social media went to investment scammers.

Impact on Victims

Scams involving online investments might have similarly severe financial repercussions. Large sums of money are frequently lost by victims, which can result in debt and unstable finances. Given that debt is a recognized risk factor for mental health conditions including anxiety and depression, this financial burden may make mental health problems worse. For young individuals who may be just beginning to establish their financial prospects and older adults who may lose their life savings, the financial losses can be very heartbreaking. For example, older persons are more likely to be the target of fraud because of their amassed money and occasionally reduced cognitive ability. On the other hand, younger investors are usually attracted by claims of large profits on investments like as meme stocks and cryptocurrencies, which are regularly advertised through social media.

Certain groups of people are more susceptible to internet investment fraud than others. A higher degree of trust in others, social isolation, cognitive decline, and other characteristics put older persons at danger. They are more prone to be the target of frauds that take advantage of their confidence and financial resources, causing them to suffer both financially and emotionally. Studies reveal that older persons who become victims of crime not only typically lose more money than younger victims, but also experience more severe emotional fallout, such as despair and PTSD.

Online investment scams also target young people, particularly those between the ages of 18 and 34. This group, although technologically savvy, is often targeted by con artists via social media sites, where they employ complex tactics to advertise phony investment possibilities. Young investors may find the promise of rapid and large returns especially alluring, which could result in rash choices and large losses.

Common Types of Online Investment Scams

Ponzi and Pyramid Schemes

Ponzi and pyramid schemes are dishonest financial ventures that entice investors with lavish profits at minimal risk. Instead of using the operation's profits to pay returns to earlier investors, Ponzi schemes use the capital of later participants. The majority of participants in pyramid schemes lose money as the plan fails as recruitment slows since they must attract new members in order to make returns.

Examples from the real world:

  • Charles Ponzi (1920s): Used international reply coupons, he promised 50% returns in 45 days. When the plan fell apart, Ponzi was imprisoned and suffered enormous financial losses.
  • Bernard Madoff (2008): Over several decades, he conducted a Ponzi scheme that duped investors of almost $65 billion. Madoff received a 150-year prison term.
  • Zeek Rewards (2012): A penny auction company that promised significant profits. It was shut down by the SEC after it was exposed as a $600 million Ponzi fraud.
  • MMM Global: This company operated in several nations and offered 100% monthly returns. The plan failed several times, resulting in large losses in terms of money.

Pump and Dump Schemes

Pump and dump techniques include making excessive or inaccurate claims about a stock, which are then spread online or through social media. When the stock price is "pumped" up to a point where fraudsters can no longer profit, they "dump" their shares at the inflated price, leaving other investors holding worthless stock as the price crashes.

Impact on investors and the market:

  • Financial Losses: When the stock market crashes, investors who believe the hype frequently suffer huge financial losses.
  • Market Manipulation: These techniques can affect market prices and weaken investor trust in financial markets.
  • Legal Consequences: Securities fraud perpetrators face severe penalties and legal punishment.

Cryptocurrency Scams

Cryptocurrency scams take advantage of digital currencies' decentralized and frequently opaque structure. Fake trading platforms, fraudulent initial coin offers (ICOs), and liquidity mining schemes that promise large returns but ultimately take investors' money are all examples of common frauds.

Popular cases:

  • Fake Trading Platforms: Scammers establish fake exchanges to take deposits from users. For example, the 2019 PlusToken scam duped investors of almost $2 billion.
  • Liquidity Mining Scams: Fraudulent schemes promise huge rewards for providing liquidity to decentralized finance (DeFi) platforms but disappear with investors' funds.
  • Rug Pulls: Developers develop a new cryptocurrency, market it excessively, and then remove all funds, leaving investors with worthless tokens. The 2021 Squid Game token fraud is a famous example.

Real Estate Investment Scams

Real estate investment scams can involve fake property listings, fake investment possibilities, and schemes that promise huge profits on real estate projects that do not exist. Scammers may employ complex marketing strategies to persuade investors into parting with their money.

Red flags:

  • Phantom Homes: Scammers list homes that do not exist or are not for sale, collecting deposits from several victims.
  • Rental Scams: Fraudsters act as landlords and collect rent or security deposits for properties they do not own.
  • Investment Scams: Promises of big returns on real estate ventures that never materialize. Investors should be aware of bargains that look too good to be true and always verify the validity of the property and the vendor.

Warning Signs of Online Investment Scams

Too Good to Be True

Investment scams sometimes entice victims with promises of extremely high profits with little or no risk. These offers are designed to exploit the innate desire for quick and easy earnings. For instance, scammers may offer assured profits of 20% or more each month, which is impossible and unsustainable in legitimate investments.

Scammers regularly guarantee profits to entice new investors. They may utilize phony testimonials, falsified success stories, or even impersonate well-known figures to create credibility. For example, a scam can falsely claim that a celebrity like Elon Musk has approved a certain investment platform, guaranteeing that a tiny initial investment can give enormous profits in a short period.

High-Pressure Sales Tactics and Urgency

Scammers typically employ high-pressure sales tactics to create a sense of urgency, pressuring victims to make rapid decisions without proper time to investigate the investment. They can suggest that the opportunity is limited or that the offer will expire soon, pressuring the victim to act quickly. The FTC states that high-pressure techniques are a warning flag, as legitimate investments do not demand fast decisions.

Examples of how scammers create a sense of urgency:

  • Limited-Time Offers: Scammers may claim that the investment opportunity is only accessible for a short period, prompting victims to invest immediately to risk missing out.
  • Exclusive Deals: They might promote the investment as an exclusive deal available only to a select few, generating a fear of missing out.
  • Immediate Action Required: Fraudsters typically emphasize that immediate action is necessary to secure the investment, deterring victims from taking the time to verify the information.

Lack of Transparency

Scammers frequently employ the approach of giving ambiguous or evasive information on the investment. They could evade answering certain queries or provide evasive justifications for the operation of the investment and the source of the earnings. It is challenging for investors to evaluate the opportunity's credibility because of this lack of openness.

Investors should always obtain comprehensive information in writing to protect themselves. This covers the investment plan, the dangers associated with it, and the qualifications of the people or companies making the offer. In the event that legal action is required, written paperwork can serve as a foundation for establishing the authenticity of the investment.

Unsolicited Offers

Unsolicited investment proposals are frequently scams, whether they come through social media, emails, or phone calls. These offerings, which may originate from people or companies the investor has never heard of before, usually promise large profits with no risk.

Unregistered Securities and Professionals

Investing with entities or persons that are not registered raises the risk of fraud considerably. Only companies and individuals that meet certain requirements and abide by laws protecting investors are registered by securities authorities. In order to make sure that the individual or company selling the investment is competent and permitted to provide investment services, it is imperative that you verify their registration status.

How to Protect Yourself from Online Investment Scams

Do Your Research

It is essential to conduct independent research before to making any investing selections. It can be dangerous to rely only on information supplied by the individual or organization making the investment because it might be misleading or lacking. An in-depth comprehension of the investment, its dangers, and its possible rewards is provided to investors by independent research. Independent research, according to New Constructs, provides security by pointing out equities that are about to crash, which biased sources might miss. This diligence usually pays off in the long term and is a necessary component of carrying out fiduciary duties.


  • SEC’s EDGAR Database: This tool allows investors to access a public company's financial information and operations, providing transparency and helping investors make informed decisions.
  • FINRA’s BrokerCheck: This resource provides detailed information about brokers, investment advisors, and their firms, including employment history, certifications, licenses, and any violations.

Ask Questions

Key questions to ask about the investment and the person offering it:

  • How does the investment work? Ensure you understand the investment well enough to explain it to someone else.
  • What are the risks involved? Assess if you are comfortable taking these risks.
  • What are the costs to buy, hold, and sell the investment? Understand all associated fees and potential tax implications.
  • Is the person offering the investment registered and licensed? Verify their credentials and background.
  • What is the track record of the investment? Look for historical performance data and any red flags.

Consult Trusted Advisors

Unbiased counsel adapted to your unique financial circumstances and objectives can be obtained from independent financial consultants. You can be sure that the counsel you receive is in your best interest because they are not motivated by the urge to sell you a certain product.

How to find a reputable advisor:

  • Check Credentials: Use tools like the SEC’s EDGAR database and FINRA’s BrokerCheck to verify the advisor’s registration and background.
  • Ask for Recommendations: Seek referrals from trusted friends, family, or colleagues who have had positive experiences with financial advisors.
  • Interview Multiple Advisors: Meet with several advisors to find one who understands your financial goals and has a transparent fee structure.