Money for Nothing? If it's too good ot be true...

I like visiting and browsing through different Internet forums. If there are money or investment-related topics I try to learn what I can. One common topic is how to make money on the Internet. Now there are a lot of ways to earn on the Internet, but there are also a lot of scams.

It takes work and skill to make any real amount of money online, but a lot of people don't seem to get that. Sadly, a lot of people are attracted to the shadier deals on the Internet like viewing and clicking ads and taking surveys. They are attracted to the promise of easy money for little to no effort. If it's too good to be true it probably is.

There are many, many websites and articles that discuss how to spot and avoid scams. There's no shortage of warnings. I think the problem is the easy money mentality. The lure of quick cash often overpowers common sense and good advice. Unfortunately it seems that the most effective cure is also the most painful: experience.

Anatomy of an Internet Forum Investment Scam

In my last post I talked a little about investment scams. After I wrote that post I searched around the Internet for more information. I wanted to find out more about how scammers operated on Internet forums. I'll try to provide a general description of how they do it.

1. First, a scammer/s will often post on forums where a large number of members are looking for investments that yield a good return.

2. The patient scammer will wait a few months or even years, reading and posting in the forum and building a nice reputation as a knowledgeable person. Most, however, are not this patient and will strike within the first few days or weeks of joining.

3. The scammer will then start a forum topic and post that he is looking for investors for a business opportunity. When asked about the opportunity he will be evasive and vague. Usually he will hint that it involves a hot industry (alternative energy, Internet marketing, etc.). He will instruct those interested to contact him via e-mail or cellphone. Some will even actually meet with potential "investors". The business opportunity guarantees a phenomenally high rate of return.

4. Several interested forum members will then ask for details, leaving their own contact information. Many of these will actually be dummy accounts created by the scammer and/or his friends to generate interest in the topic.

5. During this time anyone who expresses any doubt over the "business opportunity" will be dealt with in one of two ways.

5.A. The first way is a polite response by the scammer saying "Let's just talk via email or in person so I can explain it better to you."

5.B. The second way is to be shouted down by the scammer's supporters, either dummy accounts or those who have already "invested" their money. Their message is anyone who doubts this business opportunity is just jealous and maliciously trying to smear another person's name. They might also tell the doubters to "mind their own business".

6. When the scammer and friends decide they have enough money, or that people/the authorities are starting to catch on, they take the money and run. Before this happens some "investors" may actually make some money (though illegally gained). The majority will have lost all the money they put in.

7. There are a few things that may deter the victims from seeking help from the authorities. First are the feelings of shame and guilt. Second is the vain hope that the "investment" was legitimate and that the scammer will pay them back in the end. The forum dummy accounts will also try various tricks to stop victims from reporting the incident. They might ask the "investors" to be patient, some might even claim to have been paid a partial amount, and that the scammer just needs to straighten some things out before resuming payments.

I hope this helps.

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!