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Learn How to Detect a Potentially Fraudulent Investment in 8 Steps

You can’t judge a book by its cover. Appearance can be deceiving when trying to protect you from investment fraud.

Con-men uses Sharp-looking companies with trustworthy facades to instill confidence in their victims.

Rented office spaces, receptionists, professionally designed brochures, impressive websites, and more are all tools used to create the appearance of legitimacy.

That’s because the fraudulent individual knows he must gain your trust to get your money, so he will do everything necessary to appear reputable.

For that reason, you must let go of any preconceived notions or expectations about how a fraudulent individual should appear. He could be a friend-of-a-friend, a kind voice on the phone, an authority figure on the internet, or a business person in a perfectly tailored suit.

Additionally, the fraudulent individuals can use any of the traditional communication channels to commit investment fraud. Besides the telephone, mail, and internet, investment fraudsters may advertise in well-known publications to appear legitimate.

Just because you learn about investment through a reputable channel does not imply the investment itself is legitimate.

You also can’t trust an investment just because of someone you know. Fraudulent individuals will often pay the first few investors large returns to refer the investment to their friends.


Many investment frauds spread like a virus because self-deceived investors “talk up” their great returns at social gatherings. Don’t be deceived.

Never value the valueless. The trick is to know how to recognize it. The reality is investment fraud can look legitimate in all the ordinary ways, which begs the question, “How can you protect yourself from investment fraud, and what are the tell-tale warning signs to tip me off before I lose money?”

Remember, a dollar saved is a dollar earned.

How to know if an investment is a fraud

Financial fraudsters use sophisticated and effective tactics to get people to part with their money. Here are six steps you can take to help you spot an investment scam.

  1. Offers unrealistic returns: Be skeptical of investment pitches that guarantee a certain return or promise spectacular profits. They are what fraud-fighters call “phantom riches” that you will never see. Generally, they will offer you impossible fixed interests. “They tell you I’m going to pay you 20% per month’, but how is that possible if the reference rate is at 5% per year, and that makes no sense. A profit of more than 50% per year is out of proportion.

Above the market, the return is the number one characteristic of investment fraud. It’s the bait designed to hook you.

  1. If something sounds too good to be true, maybe it is not: Just because an investment is advertised on radio, television, or in the press does not mean that it is legitimate and reliable. You always have to investigate. If something sounds too good, find information about it.
  2. They ask you to recruit new people: If the business pays you for the number of people you bring, it is a pyramid scheme that is only supported by the new money that the recruits inject. Only those who are at the top of the investment gains.
  3. They are not regulated & cannot be verified.
  4. It is unsustainable in the long term: “If the business cannot be replicated. You’re actually putting your ‘wool’ into something that you don’t know if you’re going to see again. “Whenever you want to enter into an investment, analyze how they work, what are their risks and benefits, as well as their tax obligations? Look for reviews on blogs, YouTube channels, specialized media, social networks, and podcasts to know other users’ experiences.
  5. Ignore the “everyone is doing it” story. Don’t believe claims that “everyone” is in on the deal. Be wary of a sales pitch that focuses on how many people are investing without telling you why the investment is sound. Remember, affinity frauds prey upon members of the same social circle, religious group, or ethnic background.
  6. Refuse to be rushed. When a salesperson demands you invest on the spot, that is a red flag. If they tell you that the offer is for a limited time only or that investment opportunities are limited, consider it a red flag. Investments must be understood fully before accepting risk. Never tolerate sales pressure when investing. A legitimate investment will still be there tomorrow.
  7. Avoid investments where the salesperson requests your bank account number and other unnecessary personal information, so he can “facilitate the transaction.” Additionally, you should not send money to a post office box, and if the salesperson offers to send a personal courier to pick up the check, it may very well be to avoid Federal mail fraud charges

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