Money Management

How To Avoid Financial Fraud And Protect Your Investments

Are you aware of the risks you take online? Nearly half the U.S. population was impacted by identity fraud and financial fraud in 2020, responsible for $56B in losses. And the truth is, you’ve never been a bigger target.

Technology is woven into our lives. From remote work to shopping to banking, we can send/receive money and share sensitive information at the touch of a button. But behind the convenient reality of the digital age lurks a dark underbelly of hackers and sophisticated con artists. 

Everyone wants to protect their children, families, and financial assets from scammers. Unfortunately, modern-day con artists have grown to become more advanced. With various types of manipulation style phishing and brute force password attacks, hackers don’t need much to steal your data, access your online accounts, and wipe out your finances.

Avoiding financial fraud isn’t easy, but it’s achievable. It’s time to get familiar with what you’re up against. Read on to find out how to avoid financial fraud and protect your investments.

What Is Investment Fraud?

Investment fraud is the purported transfer or illegal sale of seemingly valuable financial instruments, where criminals trick victims into sending money for a stake in a falsely-inflated financial property, such as stocks, gold, cryptocurrency, land, or business.

The fraudsters will usually convince victims they can earn a high return on their investment, when in fact, they often end up with nothing and may even face debt and legal consequences.

How Does Investment Fraud Happen?

Criminals convince their victims to move money to a fictitious fund or offshore account. The fraudsters often contact random people via phone calls or emails, with no prior relationship in place. In other cases, the fraudsters may use an existing connection to garner trust first.

Typically, after people invest in the bogus scam, the fraudsters will abruptly end contact. Sometimes, victims don’t realize what has happened for weeks or months, as the fraudsters can issue early returns or partial payments to fool victims into thinking it is a legitimate investment.

How Common Is Investment Fraud?

Thousands of people lose money to investment scams each year. Financial fraud has been around for decades, from cold calling to in-person confidence scams. But as the internet and digital communications have advanced, the scams have become more prevalent.

In May 2021, investment fraud reached a record-breaking level. According to the FBI’s Internet Crime Complaint Center (IC3), over six million complaints had been lodged. When you consider that it took almost seven years for IC3 to hit one million reports and only 14 months to rack up the latest million, the growth of investment fraud is undeniable.

Reports from the Federal Trade Commission (FTC) also make for concerning reading, as 14,079 investment scams were reported in Q1 2021—with victims losing out on a combined $215 million.

5 Common Investment Fraud Tactics

If you’re going to stay clear of investment fraud, it helps to understand how it works. Here are five common types of financial fraud that thieves use to trick investors out of their money.

1) Pyramid scheme

A pyramid scheme is a well-known type of investment fraud where scammers convince people to invest in a commission-based business model with the promise of bigger returns if they recruit other people. However, this unsustainable model will collapse when the top-level investors cash out. Quite often, victims will unwittingly enter the scheme after someone they trust—such as an old school friend—entices them with the details of the program, like flexible hours and travel perks.

2) Ponzi scheme

A Ponzi scheme is similar to a pyramid scheme, where existing investors earn money via funds collected from new investors. The scheme organizers tempt people to invest with the promise of making high returns with little to no risk. However, the fraudsters don’t invest their money in the pool—they pay the early investors and themselves instead. As Ponzi schemes rely on a constant flow of new money to survive, they usually fold whenever it becomes hard to find new investors or when a large number of existing investors cash out.

3) Affinity fraud

Affinity fraud is a form of investment fraud in which fraudsters target members of identifiable groups by pretending to be members of the same group to gain their victims’ trust. Bernie Madoff was the mastermind behind a notorious case of affinity fraud, where he conned thousands of investors in the Jewish community to the tune of over $65 billion.

4) Pump and dump fraud

A pump and dump scam is a type of investment fraud where criminals pitch a deal of low-priced stock to a portfolio of investors. When investors buy, the value rises (“pumping the stock”). Before the stock crashes, the fraudster dumps all of their own shares and vanishes with the lion’s share of the money, leaving duped investors with worthless stocks.

5) Boiler room scams

A boiler room scam is a criminal operation where fake stockbrokers use dishonest, high-pressure sales tactics to coerce investors to buy bogus shares. Often, the fraudsters work out of an outbound call center.

This type of financial fraud is inherently linked to pump and dump scams and was the “business model” of Stratton Oakmont—the company in the movie Wolf of Wall Street.

How Do Hackers And Scammers Steal Your Data And Overtake Your Accounts?
It’s no exaggeration to say that if your most personal data, like credit card information and social security number (SSN), falls into the wrong hands, then it could ruin your life.

Here are four ways hackers can take over your accounts:

1) Data breaches

In October 2021, a Fortune report revealed there were 1,291 data breaches in the previous ten months, compromising the personal records of over 281 million people. When hackers seize sensitive usernames and passwords for one account, they will try accessing other services with the same credentials. Unfortunately, this approach works because many of us use the same details for multiple accounts.

2) Brute force

Machine learning can test out thousands of computer-generated password permutations in a matter of seconds. Nefarious hackers leverage this technology to launch brute force attacks, which can crack open accounts with 8-character passwords within two hours.

3) Malware

Computer viruses don’t just maliciously damage a victim’s computer—they can steal information, too. Hackers can install malware on your computer that can spy on your internet traffic, record keystrokes, or hijack valuable information, like online banking details.

4) Phishing

Some criminals lure unsuspecting victims into sharing their passwords through scam emails, chats, or SMS. The fraudsters masquerade as a legitimate service provider, like an e-commerce store pretending there is an issue with an account or order.

How To Know If You Are A Victim Of Investment Fraud?

There are a lot of genuine financial investment opportunities online. Between fintech startups, the growth of cryptocurrency, and greater support for starting a stock portfolio at a young age, it’s a great time to invest. The flipside is that it’s also one of the riskiest times, as hackers have a myriad of means to take advantage of people.

If you have a suspicion about a recent or ongoing encounter, here are five warning signs that you might be the victim of investment fraud:

It starts with unsolicited contact. If an unknown company contacts you out of the blue—by email, phone, text, or even in person—it’s an immediate red flag.

There is bad grammar. Legitimate financial institutions will take care to ensure their communications are professional and well-written. Fraudsters may make grammar errors and typos, especially if English isn’t their native tongue.
There is pressure for an answer. A genuine bank or legitimate company won’t rush you or demand you hand over information or money. If people push for urgent action with unreasonable deadlines, chances are it’s a scam.
It isn’t easy to contact the firm. If the email, letter, or website lacks contact details or only has a PO box address, it’s a big warning sign. Even in the age of automated support chatbots and FAQ sections, companies shouldn’t make it hard for people to get in touch.
It sounds too good to be true. If someone you don’t know or trust is offering a high return for your investment, with little to no risk, take it with a pinch of salt. Sometimes, your gut feeling is the ultimate litmus test.

What To Do If You Are A Victim Of Investment Fraud

If reading the warning signs above gives you a pit in your stomach, and you fear the worst has already happened, then it’s time to act fast. You might not get your money back, but you can certainly stop a full-scale disaster.

The advice from FINRA is to follow its Recovery Checklist for Victims of Investment, which we have summarized here:

1) Create an investment fraud file

Gather all relevant documentation about the fraud and store it in one secure location. The file should include:

The perpetrator’s name
The perpetrator’s contact details (e.g., email address, phone numbers, and websites)
A timeline of events
Police reports
Call notes
Your most recent credit report from the three main credit bureaus— Equifax, Experian, and TransUnion.

2) Know your rights

Learn about your federal rights around financial fraud from the U.S. Department of Justice (DOJ).
Check out the Victims of Crime’s (OVC) brochure, What You Can Do If You Are a Victim of Crime.
On the state law level, get information from your state Attorney General by contacting the National Association of Attorneys General website.
3) Make a report with the regulators
Report the investment fraud to all financial regulatory agencies that apply at the national, federal, and state level.
Lodge a report with the FTC. You can do that via the FTC’s Complaint Assistant or by calling (877) FTC-HELP.

4) Report the fraud to law enforcement

Make a police report at any local law enforcement office to start the recovery process.
Although there’s no guarantee of getting your money back, you can ensure the police investigate the responsible parties and prevent ongoing fraud from impacting other people.

5) Further action

After 30 days, follow up with the agencies and police to get an update.
You can also consider legitimate ways to recover lost funds, such as hiring an asset recovery company.
You can also use Aura, as it can help you recover your assets and provides all customers with $1M identity theft insurance.

How To Avoid And Prevent Investment Scams

When it comes to financial fraud, the best remedy is prevention. Here are five vital steps to bolster the security around your most valuable personal data and stay clear of investment scams:

Research the company. Before you invest in anything, do your due diligence to research the company. Learn about its reputation and read the reviews of its products and services from other customers. Don’t dive into anything after receiving unsolicited emails from a stranger!
Ask questions. Don’t just take the word of the person trying to convince you to invest. Take time to do your own independent research, and ask others online about their experience.
Get monthly credit reports. Get into the habit of checking your credit score regularly. You can set up alerts with all three main bureaus to receive notifications if anyone tries to make changes or open accounts in your name.

Set up banking alerts.

Get notifications from your bank when transactions happen, or changes are made. Examples include a change of address or the addition of a new account holder.
Use home title monitoring. Deed fraud is a common scam that can trick people out of their homes. Like credit and bank alerts, setting up home title monitoring is a smart move to keep you one step ahead of the fraudsters.

Now you know the consequences of investment fraud, the warning signs, and how much work you must do to report the crime if you fall victim. It’s clear that avoiding investment fraud altogether is in your best interest.

Originally posted 2022-03-08 02:36:51.

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