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Ponzi schemes, other investment fraud on the rise

| Jan 7, 2021 | Ponzi Schemes

Officials at the Securities and Exchange Commission (SEC) recently reported a sharp uptick in consumer complaints during the market chaos brought on by the pandemic. Specifically, there has been a rise in cases involving Ponzi schemes, fake stock promotions, fraudulent certificates of deposit and sham community investments.

According to the Federal Trade Commission, income investment scams are costing victims an average of $16,000.

How can you recognize a Ponzi scheme?

Sadly, during these trying economic times, fraudsters are targeting people who are out of work or in desperate need of a financial windfall. As the saying goes, though, if it seems too good to be true, it probably is. Here are some tell-tale signs to look out for when it comes to Ponzi/pyramid schemes:

  • A rock-solid guarantee of returns – Investments are inherently risky, as any reputable broker will tell you. If one comes with a guarantee of success, it might not be legitimate.
  • No fluctuation in return amount – True investments go up and down pursuant to market conditions. Consistent returns that don’t waver at all could be fraudulent.
  • Sellers are unlicensed and/or unregistered – Legitimate sellers and brokers won’t usually get caught up in these unsavory transactions. The SEC advises buyers to research a seller’s licensing status online before investing.

Are those CDs for real?

Fraudulent certificates of deposit may be more difficult to pinpoint. This is because they often rely on “spoofing” legitimate websites for financial institutions or brokerages, encouraging investors to provide key financial information in exchange for essentially worthless CDs. These spoofed sites can seem incredibly real, copying logos, fonts, addresses and more from legitimate companies.

More indicators of fake CDs and sellers include:

  • High interest rates
  • The need for high-price initial investments (often more than $200,000)
  • Offering only CDs, without additional investment products like online banking, brokerage accounts or loans
  • No early withdrawal penalties (like those typical on legitimate CDs)
  • The need to wire funds to different accounts, sometimes located in foreign countries
  • Having to send funds through a moderator or “clearing partner” that is allegedly recognized by federal securities authorities

What if the investments are directly linked to Coronavirus?

The SEC is also warning potential investors to keep a keen eye out for investment opportunities tied to alleged cures or preventatives for COVID-19. There are, obviously, legitimate companies (like biopharmaceutical conglomerates working on vaccines and providers of personal protective equipment) dealing with the pandemic, but start-ups making big claims should be treated with suspicion.