Different Investment Frauds – How To Avoid Them

At one time or another, most investors come upon a great deal only to have it result in a loss. Incidentally, this happens a lot in investing as a rule, however, there is an exception. There are situations where investing is stacked up against the investor; this is called investment fraud. Investment fraud costs people and businesses billions of dollars each year. In a 2006 UK survey, it cost them $ 6.8 billion alone. So how are people led into investment fraud? The matter is as simple as profit.

Avoid Investment Fraud: Ponzi Scheme

Many times an investor runs into a situation which they think they can profit massively from. For instance, during the Bernie Madoff Ponzi scheme investors would go to an investment brokerage run by him. Their initial reason was for incredibly high returns on investments. It started small of course, but as soon as word got out that the returns were amazing people started investing heavily in Madoff’s organization. Yet, this was all a ploy. Madoff had taken investor money and simply stored it away and inflated the values of the accounts. Just as soon as one person emptied their account with their reported earnings another investor came in to replace the amount lost in the account, so it continued to grow. This went on for years before questions came up. This scenario cost investors $ 65 billion. Most if not all of it is reported to be unrecoverable. Ponzi schemes date back to the early 1900s, which operated on the same principle: pay out less than the amount you are given and keep attracting new people.

Avoid Investment Fraud: Franchise

Franchising is technically a very profitable venture if the parent company offering it has good reputation, a solid income take and thorough interview and subletting policies. However, sometimes, this is totally the opposite. Franchise investment fraud starts by a person or company offering a business model to any potential investors. The investors invest money to legally operate a business under the franchisers name. However, to get the investor, franchisers have been known to inflate numbers in its favor. This is also accompanied by contracts, fast transition times and hefty deposits of money. Once the investor starts they soon realize there is no real profit to be made. This is not to say that good franchises don’t exist; it’s just that even bad franchises are more willing to report profit figures to their investors.

Avoid Investment Fraud: Mass Marketing Ploy

One point or another people have received email saying they are the winners of a large substantial sum of money. The catch is that the money cannot be received unless some fees are paid to release the funds in question, sometimes as an “administration” fee. People pay into them only to find out that the riches they were promised doesn’t exist and any investment is gone. Some daring fraudsters use representatives to make it seem legitimate, hence some major losses. Jir Pasovsk once lost six hundred thousand dollars to a Nigerian scammer, only to kill an official representative of Nigeria when recovery could not occur. Millions more are lost every year as a result of this investment fraud.

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