Avoid investment fraud

Recognize the signs

No matter how you choose to invest your money, a degree of risk exists. The greater the promise of riches, the riskier the investment, or it does not exist at all. Recognize and know the signs of an investment scam; it will save you money.

High rate of return, especially one that is better than similar investments.
A guarantee that the investment will not fail.
Insistence that the investment is available only for a short period of time.
Pressure to give them your money immediately and unconventionally: asking for a blank check, money order, a prepaid reloadable card, or even an electronic funds transfer.
The absence of any documents, particularly those that outline the investment, how it works, and how you will be paid.

Your best defense is asking a lot of questions. If you are not satisfied, walk away. Remember, if it sounds too good to be true, it is.

Relationship investment scams: What they are and how to avoid them

Relationships investment scams, referred to by scammers as “pig butchering," cost consumers billions of dollars every year. And anyone can fall victim to these sophisticated schemes. They are often carried out by organized crime groups based in Southeast Asia who use human trafficking to commit their crimes. They do this by luring workers with fake job ads and the promise of well-paying jobs, then locking them into scam centers primarily in Laos, Cambodia, and Myanmar, and forcing them into defrauding people all over the world.

Fraudsters seek their targets in a number of ways. They often initiate contact through a social media platform – including dating, professional, or messaging websites, and apps. They may also text a potential victim, pretending to be a friend or to have accidentally sent the message to the wrong person. Their goal is to have their targets respond back to this initial contact.

Once a target responds, the criminal slowly works to build trust and uses friendship, romance, or the appearance of a glamorous lifestyle to keep their targets engaged. Scammers often use a fake identity and share made up stories, fake photos, and other lies to build a connection.

When the scammer has established a relationship or friendship with the victim, they then introduce an “investment opportunity" or advice on trading and work to convince their targets that they can provide the tools or strategies needed to make money. They may use fake screenshots of investment trading platforms or fake testimonials to make their targets believe the opportunity is real.

After the target agrees to invest, the fraudster often directs them to download an app or create an account on a website and wire cash, send crypto assets, or write a check to make an initial deposit. Scammers then generate fake reports to convince the victim that they are profiting. They may even allow the victim to make a small withdrawal to assure them it's not a scam.

The next step in the long con is to have the target invest more and more money. If a target ever wishes to cash out their investments, the scammer will make an excuse for why this cannot happen. Often, the scammer will claim the victim needs to pay a fee or tax to receive their money. This is another lie and an effort to get even more money from the target.

Once the scammer believes they've extracted as much money as possible, they abruptly cut off communication and disappear with the victim's money.

To outsmart relationship investment scammers, keep an eye out for the following warning signs:

Unexpected contact: A stranger may contact you out of the blue through text message, social media, professional network, or a dating or messaging app.
Refusal to participate in video chats or in-person meet ups: If someone you've been messaging with consistently declines to interact face to face, they likely aren't the person from the profile photo.
Requests for financial information: Don't share sensitive data like bank details with unverified individuals.
Invitations to invest in specific financial products: Be suspicious of any unsolicited investment advice or tips, particularly from someone you've only spoken to online.
Promises of big returns: Take a closer look at any investment that offers much higher than average returns or is touted as “guaranteed."
Sense of urgency: Be suspicious of messages indicating you need to act immediately to take advantage of an opportunity or avoid a consequence.
Requirements to pay by cryptocurrency: Scammers prefer cryptocurrencies because they don't have the same legal protections as traditional payment methods and can't be reversed.
Unknown or confusing investment opportunity: If you can't explain an investment to someone else, it's probably not for you.
Requirements to use a specific trading platform or website: Scammers will use a trading platform they can control or manipulate.
Persistent attempts to isolate you: It's a red flag if scammers try to monopolize your attention and cut you off from loved ones.

Be on guard against relationship investment scams. Do not respond to messages from those you don't know, and report suspected scams to the FBI at https://www.ic3.gov/.

Top investment risks

Many investment opportunities are offered by legitimate financial professionals, and some of those opportunities can hold great promise. Remember: All investments carry risk. Before you commit your money, make sure the seller is licensed and the investment is registered.

Watch out for these risky investments, often sold without regard to what is suitable for you and, perhaps, by a con artist:

Self-directed IRAs. These allow you to invest in securities not typically offered, such as real estate, private tax liens, promissory notes, and even gold. However, you are responsible to research opportunities and avoid scams. Custodians and trustees of self-directed IRAs may have a limited duty to protect the owner and may not evaluate the quality, value, or legitimacy of an investment or its promoters. Use the following tip sheet to help inform your decision: The Self-Directed IRA: Know the facts. Get a second opinion
Gold. The scammer may promise “guaranteed” returns with a stake in an active or soon-to-be active gold mine that will bring quick riches. In reality, gold investments can be highly speculative and risky.
Oil and gas. The seller tells you the oil or gas wells in Texas or Oklahoma have excellent productivity. Be skeptical; these tend to be unsuitable for smaller investors who cannot afford the risk.
Promissory notes. Often pitched as personal loans with the promise of big returns, buyers may suffer deep losses if the notes are unregistered or fraudulent. Unregistered promissory notes are often covers for Ponzi schemes.
Ponzi schemes. A Ponzi pays early investors with funds from later investors, creating the illusion that everyone is making money. All end up losing all or most of their money. Members of religious, ethnic, or other groups with common interests are often targeted and are incredulous when they find "one of their own" has scammed them.
Real estate investment schemes: Legitimate real estate investments can be an important part of a diversified investment portfolio, but there are big risks. In particular, there have been problems with:

Non-traded real estate investment trusts (REITS).
Properties that are bank-owned, pending short-sale, or in foreclosure
Investments supposedly secured by an interest in real property that actually lack any remaining equity. If you are investing in real estate, do your own title search, make sure the trust deed is recorded, and know your position on the deed if the investment goes sour.

New technology. Schemers are good at touting the newest technology – all they need are a couple of “cutting edge” investors to get off the ground. The schemers may use a prototype called a “black box” to convince you to invest.