Common Scams
Learn about common fraud tactics and how to avoid them.
For more information, visit investor.gov.
Oil & Gas Investment Fraud
Fraudulent oil and gas deals are frequently structured with the limited partnership (or other legal entity) in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states. Thus, there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Such a structure also makes it difficult for law enforcement officials and victims to identify and expose the fraud.
Oil & gas investment fraud is frequently the top investment fraud committed in Kansas.
Cryptocurrency Scams
Only scammers demand payment in cryptocurrency. No legitimate business is going to demand you send cryptocurrency in advance – not to buy something, and not to protect your money. That is always a scam. Only scammers will guarantee profits or big returns. Do not trust people who promise you can quickly and easily make money in the crypto markets. Never mix online dating and investment advice. If you meet someone on a dating site or app, and they want to show you how to invest in crypto, or asks you to send them crypto, that is a scam.
Source What To Know About Cryptocurrency and Scams | Consumer Advice (ftc.gov)
Ponzi Schemes
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves. With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.
Source Ponzi Scheme | Investor.gov
Pyramid Schemes
In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants, usually where: the promoter promises a high return in a short period of time, no genuine product or service is actually sold, and the primary emphasis is on recruiting new participants. Fraudsters frequently promote pyramid schemes through social media, Internet advertising, company websites, group presentations, conference calls, YouTube videos, and other means. Pyramid scheme promoters may go to great lengths to make the program look like a business, such as a legitimate multi-level marketing (MLM) program. But the fraudsters use money paid by new recruits to pay off earlier-stage investors (usually recruits). At some point, the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and people lose their money.
Social Media Investment Fraud
Social media, such as Facebook, YouTube, Twitter, and LinkedIn, have become key tools for U.S. investors. Whether they are seeking research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investment strategy, up-to-date news or simply want to discuss the markets with others, investors turn to social media. Social media also offers a number of features that criminals may find attractive. Fraudsters can use social media in their efforts to appear legitimate, to hide behind anonymity, and to reach many people at low cost.
Affinity Fraud
Affinity frauds target members of identifiable groups, such as the elderly, or religious or ethnic communities. The fraudsters involved in affinity scams often are – or pretend to be – members of the group. They may enlist respected leaders from the group to spread the word about the scheme, convincing them it is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraud they helped to promote. These scams exploit the trust and friendship that exists in groups of people. Because of the tight-knit structure of many groups, outsiders may not know about the affinity scam. Victims may try to work things out within the group rather than notify authorities or pursue legal remedies.
Microcap Fraud
Publicly-available information about microcap stocks (low-priced stocks issued by the smallest of companies), including penny stocks (the very lowest priced stocks), often is scarce. This makes it easier for fraudsters to spread false information. In addition, it is often easier for fraudsters to manipulate the price of microcap stocks because microcap stocks historically have been less liquid than the stock of larger companies and often do not trade on a national securities exchange. Fraudsters often use emerging technologies or industries – including Initial Coin Offerings (ICOs) and digital assets – to entice investors as part of a fraudulent or manipulative scheme. For example, they may publicly announce a development that is intended to affect a company's stock price. Or they may promote a company that claims to be developing products or services relating to the latest news events or trends.
Financial Phishing
Phishing scams typically involve emails that falsely claim to be from brokerage firms, banks, credit card companies, Internet auction sites, electronic payment services, or some other service that you use. In other instances, the emails purport to be from government agencies. To appear genuine, these emails may use: The names of real people, legitimate-looking email addresses (such as support@[name of your financial institution].com.), authentic-looking logos and graphics, links to pages of a bona fide website or official-looking fine print and references to laws
Source "Phishing" and Other Online Identity Theft Scams: Don't Take the Bait | FINRA.org
Advance Fee Fraud
Advance fee frauds ask investors to pay a fee up front – in advance of receiving any proceeds, money, stock, or warrants – in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later. Some advance fee schemes target investors who already purchased underperforming securities and offer to sell those securities if an "advance fee" is paid, or target investors who have already lost money in investment schemes. Fraudsters often direct investors to wire advance fees to escrow agents or lawyers to give investors comfort and to lend an air of legitimacy to their schemes. Fraudsters also may try to fool investors with official-sounding websites and e-mail addresses.
Churning
A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer's account without considering the customer's investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning.
Source Churning | Investor.gov
"Prime Bank" Investments
If someone approaches you about investing in a so-called "Prime Bank" program, "Prime World Bank" financial instrument, or similar high-yield security, you should know that these investments do not exist. They are all scams. Prime Bank programs often claim investors' funds will be used to buy and trade "Prime Bank" instruments. Promoters make the schemes seem legitimate, using complex, sophisticated and official-sounding terms. The investment may be described as debentures, standby letters of credit, bank guarantees, an offshore trading program, a high-yield investment program, or some variation.
Internet Investment Fraud
The Internet is a useful way to reach a mass audience without spending a lot of time or money. A website, online message, or social media site can reach large numbers with minimum effort. It's easy for fraudsters to make their messages look real and credible and sometimes hard for investors to tell the difference between fact and fiction. If an investment promotion grabs your interest, research the "opportunity" even before providing your phone number and email address. Otherwise, you may be setting yourself up to be targeted for investment fraud.
Pump & Dump Scheme
"Pump and dump" schemes have two parts. In the first, promoters try to boost the price of a stock with false or misleading statements about the company. Once the stock price has been pumped up, fraudsters move on to the second part, where they seek to profit by selling their own holdings of the stock, and dumping shares into the market. These schemes often occur on the Internet where it is common to see messages urging readers to buy a stock quickly. Often, the promoters will claim to have "inside" information about a development that will be positive for the stock. After these fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money.
Brokerage Firm Identify Theft Scams
Some scamsters are creating phony websites that misappropriate the name or website content of legitimate brokerage firms to solicit business from unwary investors. By stealing the identity of a legitimate brokerage firm, scamsters can claim that they are members of the Securities Investor Protection Corporation (SIPC) and registered with FINRA. Potential investors may be urged to go to SIPC's and FINRA's websites to "verify" the phony brokerage firm, giving them a false sense of security. Using these phony websites, the unlicensed brokerage firms often attempt to sell shares of small U.S. companies to investors in other countries. After the sale, the price usually falls and the investors lose their money. In a twist on this scam, the fraudsters may offer to help investors recover their losses by selling their thinly traded stocks (usually, bought through another scam). However, in order for the transaction to proceed, the investor must first deposit money in an "escrow account" or buy a performance bond. The phony firm then vanishes with the money.
Source "Phishing" and Other Online Identity Theft Scams: Don't Take the Bait | FINRA.org