As we mentioned last time, we’re going to talk about the various kinds of scams that you might run into the world of investing; scams designed to separate you from your hard earned cash with false promises. The internet has given the people who perpetrate these scams a new lease on life by providing them with the anonymity needed to operate in secret and the technological means to target a much wider number of people than ever before.
However, just because the technology has advanced, the basic scams themselves are still fairly old. That’s the one thing that we have going for us when it comes to spotting investment scams: there are really only a few basic types of scam out there, and they just tend to get repeated over and over. Here are the most frequently seen:
The Pyramid Scheme
This is a scheme wherein money is solicited from investors in order to pay off previous investors who are now expecting to receive a return. Of course, such a scheme will eventually implode when the money coming in from new investors is insufficient to cover what is owed to the old investors.
Pump and Dump
This is a practical wherein a group of people purchase a stock, almost at random. They buy a large number of shares, and then they go about recommending that stock to as many as they can, usually thousands of other investors. When those people buy the stock, there is a sudden spike in the value of the stock. The duped investors will lose when the spike is followed by the inevitable fall, but those in the know will sell their holdings during the high point of the stock, thus making off with lots of profit.
In general, one should also beware of trades that take place in off shore accounts, because this is usually done to avoid operating in the jurisdiction of local law enforcement. They almost always are looking to hide something.
Next time, we’ll begin to take a look at some of the schemes in greater detail, beginning with the bulletin board scheme.
See you next week for part 3 of Investment Scams.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 3 comments… read them below or add one }
thanks for the directives and how you are really teching me how to invest also the scams that I amy likely meet.If I may say, I have not been able to get full benefits in using ur web site. Also I want to know more no investment and the must of all I want to form a team of highmined individuals whom will be commited to work of which I know that you can help me even though we have not meet……..Team is what I want, can you help me form one becouse I can see from the look of things that you are capable of doing it. The team should be made up of
……A computer guru
……AN investment expert
……A financial expert
……A marketer.
I ask this becouse, I can’t work alone it will be easy for us to work as team and u will be in better position to addvise us……. Sir I need your help and lets do it in faith on trust. God bless. Thanks.
Hi Sean,
This is great information. Is the pyramid scheme the scam that Bernie Madoff was using to rob people of their money? It sounds similar but I’m not sure. Also, the pump and dump?
Would you see this at like investment seminars? Is this where they can tell lots of people about how great a particular stock is and get them to buy it, to drive up the price? Just wondering where I’d be likely to see it.
It is really good to remind us all of the pitfalls of thinking we can get something for virtually nothing or giving our money and power away to others.
There is no free lunch and there is no get rich quick scheme.
Financial education is a must if we want to be in control of our money.