Don’t Fall for These 4 Common Investment Scams This Festive Season

The festive season is a time of joy and celebration, but also a time when scammers are on the lookout for unsuspecting victims. Scammers often use the lure of high returns and low risks to trick people into investing their money in fraudulent schemes. Here are four common types of investment scams that you should be aware of and avoid this festive season.

1. Ponzi schemes

A Ponzi scheme is a fraudulent investment scheme that pays returns to investors from their own money or the money of new investors, rather than from actual profits.

The scheme relies on a constant inflow of new investors to keep it going, but eventually collapses when the money runs out or the number of new investors drops. Ponzi schemes often promise high and consistent returns, regardless of market conditions, and use fake testimonials or credentials to appear legitimate.

Bernie Mardoff (now deceased) is probably the world’s known largest Ponzi scheme architect.

Some signs of a Ponzi scheme are:

• The returns are too good to be true, and are not supported by any evidence or documentation.
• The investment strategy is vague, complex, or secret, and you are not given clear information about how your money is used or where it is held.
• You are pressured to invest quickly, or to reinvest your returns, and are discouraged from withdrawing your money or asking questions.
• You are asked to recruit new investors or refer your friends and family to the scheme.

2. Pyramid schemes

A pyramid scheme is a fraudulent business model that involves recruiting new members and paying commissions to existing members based on the number of people they recruit.

The scheme does not offer any real product or service, but relies on the fees paid by new members to sustain itself. Pyramid schemes often disguise themselves as multi-level marketing (MLM) programs, which are legitimate businesses that sell products or services through a network of distributors.

However, unlike MLMs, pyramid schemes focus more on recruitment than sales, and do not have any real value or customer base. Some signs of a pyramid scheme are:

• The income is based mainly or solely on recruitment, rather than sales of products or services.
• The products or services are overpriced, low-quality, or hard to sell, and you are required to buy them yourself or maintain a minimum inventory.
• The compensation plan is complex, confusing, or unrealistic, and you are not given clear information about the costs and risks involved.
• You are promised fast and easy money, and are shown exaggerated or fake income statements or testimonials.

3. Telemarketing schemes

A telemarketing scheme is a fraudulent phone call that tries to persuade you to buy something or give out your personal or financial information.

Telemarketers may use various tactics to gain your trust, such as pretending to be from a reputable company or organization, offering free gifts or prizes, creating a sense of urgency or scarcity, or using high-pressure sales techniques.

Telemarketing schemes may target you for various purposes, such as:

• Selling you worthless or overpriced products or services, such as travel packages, lottery tickets, magazine subscriptions, or charity donations.
• Asking you to pay fees or taxes upfront to claim a prize or reward that does not exist.
• Asking you to verify your bank account, credit card, social security number, or other sensitive information for identity theft or fraud.
• Asking you to invest in a bogus business opportunity or financial product.

Some signs of a telemarketing scheme are:

• The caller is unknown, unsolicited, or unfamiliar to you, and does not provide any verifiable contact details.
• The offer is too good to be true, and requires you to act quickly or miss out.
• The caller asks for your personal or financial information, such as your bank account number, credit card number, PIN code, password, etc.
• The caller asks you to pay money upfront for something that is supposed to be free or guaranteed.

4. Advance fee schemes

An advance fee scheme is a fraudulent request for money in exchange for a larger sum of money or a valuable item that does not exist.

The scammer may claim to be someone in need of help, such as a foreign prince, a lottery winner, an inheritance beneficiary, a business partner, etc., and ask you to pay fees for taxes, legal expenses, customs duties, etc., before they can send you the money or the item.

The scammer may also ask you to provide your personal or financial information for verification purposes. However, once you pay the fees or give out your information, the scammer disappears with your money and never delivers what they promised.

World Bank provides more details on advance fee frauds HERE.

Some signs of an advance fee scheme are:

• The request comes from someone you do not know personally, and who contacts you via email, phone, or social media.
• The offer is too good to be true, and involves a large amount of money or a valuable item that you can receive easily and quickly.
• The requester asks you to pay money upfront for various reasons, such as taxes, legal fees, customs duties, etc., and claims that they cannot pay them themselves or deduct them from the money or the item.
• The requester asks you to provide your personal or financial information, such as your bank account number, credit card number, social security number, etc., and claims that they need it for verification or security purposes.

Conclusion

As the festive season approaches, it is crucial to remain vigilant and informed about various business and investment schemes that can potentially harm your financial well-being.

Ponzi schemes, pyramid schemes, telemarketing schemes, and advance fee schemes are just a few examples of the deceptive practices that fraudsters may use to take advantage of people’s holiday cheer and aspirations.

To protect yourself and your finances, exercise caution, research opportunities, avoid sharing personal information with unknown parties, verify the legitimacy of companies, and seek professional advice when needed.

The joy of the festive season should not be marred by the devastating consequences of falling victim to financial scams. By staying informed and taking proactive steps to protect yourself, you can celebrate the season with peace of mind and ensure that your hard-earned money remains safe and secure.