3 Most Common Types of Investment Frauds and how to Identify them

Investment frauds are becoming more common these days. People lose millions of dollars by investing money in different things that turn out to be one big scam. Advances in technology have significantly contributed to the increasing incidence of such situations, as most investment scams occur online. The way to stand in the way of this and prevent yourself from becoming a victim is to educate yourself on this topic in time. When you have the right information, it will be much harder for others to deceive you. In the text below you can read more about the most common types of investment frauds and how to easily identify them.

What exactly are investment frauds?

Investment frauds involve situations in which people are deceived into giving money, and in the end they completely lose it, because behind them are fraudsters who aim to take their money. One of the things you need to know about investment frauds is that they happen to everyone, regardless of age and experience in the investment field. This means that even professional investors can be tricked into giving money to someone who is a scammer. How is this possible?

Well, most investment frauds today happen online. There are many fraudulent websites that look completely credible. You would never think there is anything suspicious. It seems like there is a professional behind them who really understands their job, so there is no reason to worry. Even when communicating with them, it may seem to you that everything is reliable and verified, when the situation is completely different.

One of the things that all investment frauds have in common is that they offer low risk and high profits. When you hear or read something like this, it should be a red flag, because no one in the investment field can guarantee you such conditions.

Common types of investment frauds

1. Boiler room fraud

One of the most common frauds is the so-called boiler room, which refers to an improvised office that doesn’t really exist. Its role is to convince you that the company is real and has its own address, phone number, and other contact information that seems quite realistic. Behind such scams is usually a team of people who make a website that looks professional, as if it were the website of a real company that deals with investments. They insert all the relevant information, which gives the impression that there is no reason to doubt. However, the phone number is fake, and behind the office address there is only a mailbox.

If you do not inquire in time and do not check the relevance of this information, you will be deceived, fraudsters will steal all your money and you will hardly ever be able to return it.

2. Advance fee scheme

Another common investment fraud involves an advance fee scheme where the fraudster asks the investor to pay a certain fee in advance, while in return he or she will make a significantly higher profit. The most common targets of such frauds are investors who have already had experience of losing money in risky investments and are at a disadvantage. Fraudsters find a way to get in touch with them and offer to help them get out of this situation by recouping the initial investment and securing additional profits. All it takes is for investors to pay an advance fee. However, what happens in the end is that the investor loses money again, this time as a victim of fraudulent activities, and gets into an even more unfavorable situation.

3. Ponzi or pyramid scheme


Ponzi or pyramid schemes work in a way that people join the scheme because it seems to them that they can make a big profit in a very short time. The reason they think this is the case is because they get offers via email and advertisements, sometimes even from people they know. This way, they offer them the opportunity to join a group of investors who will generate high returns in no time. In the beginning, these investors really make money, from something they think are interest checks. But the truth is that this money actually comes from other investors who are in the game. When they notice that their money is coming back to them, investors suggest their friends and family to join.

However, when fraudsters take money for themselves, interest checks start to disappear, people leave the scheme and before you know it you have lost money because someone stole it from you and ran away.

How to identify investment frauds?

Now that you know what types of investment frauds exist you will want to do everything you can to prevent yourself from falling victim to one. Some of the signs to look out for are the following:

  • If a person you don’t know knocks on your door and offers you an investment opportunity, or contacts you by phone or email; even if someone you know offers you to join the scheme be careful and ask about the offer
  • If you feel pressured to make an investment decision
  • In case the other party forbids you to call them back
  • If you find that behind the company address and phone number is only a mailbox or temporary office
  • If they guarantee you a high profit with very little risk; keep in mind that there is no guarantee for this and that such activities should be suspicious to you

In case you suspect that you are a victim of an investment fraud you will want to hire a law firm to protect your rights and help you get out of this situation. Click here for more information about professional lawyers with knowledge, skills, and experience in this field.


Investment frauds are becoming more common nowadays, mostly due to the development of technology. Most of them are played online and even professional investors can be prone to them. Often the website and all the allegations about the investment company seem so credible that you think there is no reason to doubt, even when there are scammers behind them who want to steal your money. Learning about the most common types of investment frauds and ways to identify them will help you avoid falling victim to one and losing a lot of money.

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