6 Investment Scam Red Flags and How To Avoid Them
Written by
J. Arky
Edited by
Levi Leidy
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Scammers are getting better and better at what they do. If you think your money is safe, maybe double check that you know exactly who is handling it and who is asking to see it. A recent paper discovered that crypto scammers have recently moved “$75.3 billion into suspicious exchange deposit accounts, including $15.2 billion from exchanges commonly used by U.S. investors.”
How do investment scams happen? The seeds of the scam are usually planted on websites or social media platforms in order for the thieves to build up trust over time. Once a relationship has been established and trust is created, new investing opportunities are presented.
Even more frightening is how investing scams are becoming more and more tech savvy by the day, with scammers able to bypass dual authentication blocks and design illegitimate websites or portals to deceive their potential victims.
Are you worried about being targeted? Here are six investment scam red flags and how to avoid getting caught by them.
Unlicensed Professionals Are Involved
Generally, scams start with casual inquiries from random people over the phone or through emails and social media invites, according to Christopher McGlynn, a financial expert with Compacom. They can appear to come from authentic sources, but it’s important to ensure that you’re talking to a licensed professional.
“Please remember that dealing with unlicensed professionals is fraught with danger,” McGlynn said. “I advise people to verify the credentials of the person offering the investment. Sources like FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure website can help you confirm the genuineness of the person or company you are dealing with.”
Sounds Too Good To Be True
If an investment opportunity sounds too good to be true, proceed with caution. In many cases, it probably isn’t true — and that’s bad news for anyone who puts their financial hopes and dreams into this trick basket.
“Investment scams always promise high, unrealistic returns with little or no risk,” McGlynn said. “Remember that if an offer seems too good to be true, the chances of it being true are remote. I advise you to be skeptical of any investment that guarantees magnificent returns or sounds too attractive.”
McGlynn noted that legitimate investments always carry some level of risk, so it’s important to be aware of the kind that you are legitimately dealing with as opposed to a scam.
Pressure To Act Quickly
If you feel like you are being pushed into investing faster than you feel comfortable doing, that’s a sign to stop right there because you might be working with a scammer. According to McGlynn, scammers “always exert pressure on the target to act immediately.”
The objective is to get you to invest immediately without thinking it through. “They use a sense of urgency in their tone and keep reiterating that the benefit is available for a limited period,” McGlynn explained.
Unsolicited Offers
Did you reach out to someone about an investment opportunity, or did they reach out to you? If it’s the latter, that might be a sign that the opportunity is not legitimate.
“Generally, investment scam offers come out of the blue without you seeking any information,” McGlynn said. “These messages or invitations come through cold calls or emails. That should alert you to remain cautious. I suggest ignoring such calls or emails.”
There are numerous ways of authenticating the source — like checking staff directories, looking up website information or checking reviews — before handing any money over to a stranger.
Overly Complicated Strategies
Investing isn’t always a clear-cut path, but it’s not overly complex to the point where only the person you are giving your money to understands it. And while they might tout having a secret trick up their sleeve to make you lots of money, don’t believe them. Real investment opportunities are transparent in how they operate from start to finish.
“Be wary of anyone claiming to have a secret investment that’s not available to the general public. It’s likely illegal or may not even exist,” said Yehuda Tropper, co-founder of Beca Life.
If you can’t understand how the investment strategy works or if there is some covert part to the plan, it’s better to avoid it altogether. McGlynn said that the golden rule to investing is understanding how the process works for yourself.
Difficult Payment Methods
Typically, when you pay for an investment, it’s like paying for almost anything else. But scammers are trying all sorts of new methods, like asking people to pay for gift cards, cryptocurrencies or wire transfers — in short, payment methods that are way too complicated. They are designed that way, as it makes them harder to trace.
“Any reputable advisor should be upfront about their compensation and any associated costs,” Tropper said. “It’s a red flag if they avoid the question.”
McGlynn advised that if anyone is looking for a payment from you in ways that can be hard to trace or recover, it is more likely to be a scam.
How To Avoid Getting Scammed
There are lots of ways you can prevent yourself or your loved ones from falling for an investment scam. Most of them are common-sense practices, but if you are unsure exactly what to do, here are some general rules of thumb to keep in mind.
- Avoid answering calls from unknown numbers. Oftentimes, scammers do not want to be traced, so they use encrypted numbers that do not always appear on caller ID.
- Avoid responding to text messages from unknown numbers or clicking on links. If you do not know the sender of the text or recognize the link, avoid clicking on it.
- Don’t rely on caller ID. It’s always important to verify the identity of the person you are interacting with. If you need to set up a code word within your family or trusted inner circle, do so.
- Protect personal information. Never give out banking information, your Social Security number or any other data that might be used by scammers to defraud you.
- Report the scam. If you feel you’ve been taken advantage of by an investment scam, contact your local banking institution to go over how to best protect and recover your personal finance information. Make sure to verify recent transactions so you know if there has been fraudulent activity on your account. You can also report any instances of scam to the Federal Trade Commission directly.
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