Investing Scams to Avoid

Investment fraud rarely looks like fraud at first. It usually arrives as a friendly message, a confident expert or an opportunity your friends are already in. The pitch changes with whatever is in the news, but the patterns repeat. Learning them is the best protection you have.

Red flags

• Guaranteed high returns with little or no risk. Every real investment that can earn more also carries more risk.
• Pressure to act now. "Only a few spots left" and "the window closes tonight" are designed to stop you from checking.
• Unsolicited contact. A stranger on social media, a dating app, a messaging group or a cold call who brings up investing.
• Unregistered sellers or products. Most fraud involves people and firms that are not registered with regulators.
• Payment by crypto, wire, gift card or peer-to-peer app to an individual rather than to a regulated firm in your name.
• Fees to withdraw. Being told to pay "taxes," "release fees" or a higher account level before you can take money out is a hallmark of fraud.
• Secrecy or complexity. A strategy that is "too complicated to explain" or must be kept quiet.

Common schemes

Ponzi schemes

Early investors are paid "returns" out of money from newer investors rather than from real profits. The scheme collapses when new money slows down. Consistently smooth, high returns regardless of market conditions are a classic sign.

Pump-and-dump schemes

Promoters hype a small, thinly traded stock or token through online posts, newsletters or chat groups, then sell their own holdings into the buying frenzy. The price collapses and late buyers are left with the losses.

Relationship investment scams

A scammer builds trust over weeks or months, often through a dating app, social media or a "wrong number" text, then introduces a trading platform where you appear to make money. The platform is fake, the profits are fake, and withdrawals are refused or require more payments.

Affinity fraud

Fraudsters target members of a religious, ethnic, professional or community group, often recruiting a respected member who may not realize the scheme is a fraud.

Impersonation

Scammers pose as regulators, well-known firms or financial personalities, sometimes with fake websites, cloned apps or AI-generated video. Regulators do not call to ask you to move money or pay a fee.

High-risk product pitches

Offshore binary options platforms, unregistered forex dealers and leveraged precious metals deals have all drawn repeated warnings from the SEC and CFTC.

How to check before you invest

1. Look up the person and firm on FINRA BrokerCheck and the SEC adviser database. For futures, forex and commodities, use NFA BASIC.
2. Search the SEC's EDGAR system to see whether the investment itself is registered or has filed an exemption notice.
3. Get everything in writing and read it. Ask how the seller is paid.
4. Type a firm's web address yourself rather than following a link from a message.
5. Talk it over with someone you trust who has nothing to gain from the deal.

If you have been targeted

Stop sending money, save every message and receipt, and contact your bank or broker right away. Report securities fraud to the SEC, commodities and forex fraud to the CFTC, and scams in general to the FTC. Be wary of "recovery" services that promise to get your money back for an upfront fee. Those are often run by the same fraudsters.

Sources

• Investor.gov: Types of fraud
• Investor.gov: How to avoid fraud
• Investor.gov: Ponzi schemes
• Investor.gov: Pump-and-dump schemes
• Investor.gov: Investment scams targeting groups
• CFTC: Check registration before you trade
• FTC: ReportFraud