Friday, October 15, 2010

Investment Scams

My first encounter with an investment scam was in high school, more than 12 years ago. It was called something like Octopus, because you had to recruit eight other people to "invest". It was clearly a Ponzi scheme, and did not try to disguise itself. The "investment" amount was also small at P100. The scammer/s probably thought they'd get money faster that way. I don't remember what the promised return was. I was (and still am) conservative with money so I didn't take the bait.
Through the years I've seen many other similar schemes directly and in the news. The scams range from the crude to the sophisticated. Some scammers build trust with their victims for years. Others make impressive presentations and hand out business plans. They keep evolving to keep one step ahead of their intended victims.
How then do you spot a potential scam? Here are some clear warning signs:
You are encouraged to bring in other "investors" - Earnings are paid out of new members' funds. This is becoming less popular with scammers because of increasing public awareness of Ponzi schemes.
"Guaranteed" high yields - If the "business" promises sure returns higher than what is available from the banks, walk away.
Name-dropping - The "business" tries to bolster its credibility by claiming politicians, government officials, and celebrities as among their investors. Remember, famous people can be scammed too.
Missing Securities Documents - Many scammers wil show you SEC registration papers and other documents. SEC registration does not make an investment legitimate! They need a separate license to be able to offer investments to the public.
These are just some of the things to watch out for. Remember, stay safe and don't rush into things!

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