How To Understand Investment Fraud Schemes

Imagine this scenario: you work hard to earn your money, you invest it, and then you lose it all. You are left wondering, "What on earth happened?" The sad truth is, you may have been victimized by an investment scam, and the end result is, someone else is enjoying all that money you've worked so hard for. So the question is, how to avoid this scenario?

The first thing you'd need to do is to understand these investment fraud schemes. Here is some basic information you can start with:

  • Know the common types of investment fraud.  There are so many investment fraud schemes at work nowadays, but they all typically run this way: illicit fraud operators attract potential victims into investing their hard-earned money, in return for very high yields through apparently non-traditional but legitimate financial machinations. Some common cases of investment fraud schemes include the Ponzi scheme, wherein the illicit operator gives dividends to initial investors by using the money invested by succeeding investors. This may work for some time, thereby encouraging the investors to invest even more money. The Ponzi scheme collapses on the victims once the operator runs away with all the capital invested by the victims, or when he isn't able to find succeeding investors to supply the dividends. Another example is the pyramid scheme, wherein people are offered the chance to become a distributor of a particular product for a particular fee or investment. They are encouraged to look for two or more other distributors (making a "pyramid"), and they will earn their profits once these distributors have paid the required investment dues. The pyramid scheme inevitably fails once participants drop out of the scheme or once the number of potential investors runs out.
  • Learn how to detect and avoid investment fraud schemes.  To avoid deceptive investment schemes, the first thing you can do is to extensively research the offer being made. Your first resource may be online (to see if similar cases are being reported as fraudulent by other people). Check or consult with private financial institutions, better business bureaus, local or federal investigation bureaus, and your national trade and industry department to see if the investment scheme is clean and viable. Make sure that you protect your account information carefully. Never give out your social security number, your bank account number, or any other vital information over the phone or through email. You can also avoid being a victim of identity theft this way. Legitimate business starts with legitimate surroundings. Check the person's credentials; it's best if he is associated with a reputable financial institution. If a person deals with you through post office boxes or without a direct telephone line, then it's best to hold on to your money and run away.

Don't hesitate to consult an attorney or an accountant if you don't understand the terms being offered.

Here's a common saying that could help you avoid investment frauds: if it seems too good to be true, then it probably is. Most legitimate investment strategies work gradually and require many years to yield fruitful returns, and (especially nowadays) it's wisest to invest your money through these kinds of trusted and reliable financial methods.


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