As an investor, even when you’re on the lookout for fraudulent activity, it can be difficult to spot. If you don’t know what to look for, you’re especially vulnerable to being scammed. To best protect yourself, then, it’s best to become familiar with the more common types of investment fraud.
Types of Investment Fraud to Protect Yourself From
- Pyramid schemes – In this well-known form of fraud, members of a business promise you incredible returns over a short period. All you have to do is either work for free or hand over a small amount of money to them. Then, get your friends to do the same. Although it’s possible to make money this way, most new investors get little or nothing back from their investments, while the old investors benefit handsomely from it. Pyramid schemes die off quickly, as they rely on new investments to make money, and only so many people can join.
- Ponzi schemes – These are a type of illegal pyramid scheme named after the famous New England fraudster Charles Ponzi. Ponzi schemes offer investors high rates of returns on small investments over a longer period than traditional pyramid schemes. They also do not require investors to be actively involved in recruiting. New investments are divvied up so that the majority go to the originator and the oldest members.
Avoiding investment fraud comes down to identifying the warning signs before you get involved. Once you know what to look for, staying clear of them is much easier. If you think a fraudulent organization has swindled you out of your money, a business lawyer can help you determine your best course of action.