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Too Good to Be True? How to Spot and Avoid Investment Scams

At Wright-Patt Credit Union (WPCU), our first priority is to keep our members' accounts and information safe and secure. With identity theft and financial fraud on the rise, it can be difficult to keep personal information out of the wrong hands. That's why we believe it's more important than ever to be proactive about protecting your money and privacy. In addition to taking strong security measures to safeguard your accounts, we also provide helpful tips, tools, and resources to empower you with the latest information so you can better protect yourself from fraud and enjoy greater peace of mind.

Each year, Americans lose billions of dollars to investment fraud. In today's digital age, investment fraud has become increasingly more complex and difficult to spot as fraudsters continue to come up with new ways to take advantage of investors. Victims of investment fraud tend to be older adults who are financially stable and are approaching or already in retirement. However, fraudsters are expert liars and will target people of any age if they think they can cheat them out of their hard-earned money. Protect yourself from investment fraud by knowing the common types of scams and how to avoid them.

Common types of investment scams:

​Pyramid schemes

A pyramid scheme is a fraudulent form of multi-level marketing. The scammer promises investors they will earn “unbelievable" returns if they recruit more investors. But unlike a legitimate multi-level marketing company that offers a legitimate product or service, the pyramid scheme is based on an unsustainable investment enterprise or product. As more and more investors join, the money is filtered through the pyramid, resulting in dwindling returns. In the end, the pyramid will crumble and the investors' money will be lost.

“Ponzi" schemes

In the 1920s, a con artist named Charles Ponzi swindled thousands of people out of their money in a postage-stamp speculation scheme. Much like a pyramid scheme, a Ponzi scheme involves a fraudster luring investors to contribute funds, guaranteeing high rates of return and little risk. However, instead of investing the money, the fraudster uses the funds from new investors to pay earlier investors and keeps some for themselves. With no underlying investment enterprise and therefore no cash flow, the Ponzi scheme will inevitably collapse as the fraudster runs out of money to pay investors.

Internet investment scams

The internet has made it easier and faster for scammers to lure victims of investment fraud. Using email, online newsletters, chat rooms or websites, scammers will target people looking for investment opportunities and offer a high-yield investment that sounds too good to be true. (Reminder: if something sounds too good to be true, it probably is!) Often, these investments are fraudulent, and the investor is separated from their money. If you see an offering for a high-yield investment online, be skeptical, especially if it's a foreign or “off-shore" investment. Don't invest until you have all the facts.

Tips to avoid investment fraud:

Ask plenty of questions

Before you make any investment, be sure you fully understand the investment. Here are some basic questions to ask, according to the National Securities and Exchange Commission (SEC):

  • Is the investment product registered with the SEC or my state securities agency?
  • How will the investment make me money?
  • What factors will affect the value of the investment?
  • What are the total fees involved in the investment?
  • How long has the investment company been in business? Is the company making money for investors?
  • How liquid is the investment? Could I sell it easily if I needed to?

If the seller isn't willing or able to answer these basic questions, you should be very suspicious. A reputable investment professional will be more than happy to put your mind at ease and answer your questions without rushing you into making a decision. 

Do your research

It pays to do your homework before handing over your hard-earned money. Most importantly, know who's handling your investment. State and federal laws require brokers, advisers and firms to be registered and licensed. To confirm if the person or firm is licensed to do business in your state and if they have a record of complaints or fraud, call your state securities regulator. You can also find out more about a broker or firm's background by searching the BrokerCheck database on the FINA (Financial Industry Regulatory Authority) website. 

Protect yourself from online investment fraud

These days, it can be difficult to tell if an online investment opportunity is legitimate or a scam. Be cautious if you receive unsolicited emails or social media messages from strangers giving you “insider information" about an investment opportunity. The scammer may also tell you that an investment is a limited time offer and try to convince you to act right away. Don't fall for it; it's just a way for the scammer to get you to invest without researching first. As always, be careful when sharing your personal information with anyone online. Don't give out your name, address or other personal data until you confirm that the source is reputable and legitimate. Additionally, avoid being lured by investment opportunity just because it has an attractive website; it's easy for fraudsters to create a professional-looking online presence to cover up a scam. 

Be skeptical of “guarantees"

All investments carry some degree of risk, so be wary when you hear about an investment opportunity that promises “guaranteed" rates of return that are “risk-free." In all likelihood, the investment is a scam. ​

Wright-Patt Credit Union is here to help you protect your hard-earned money from fraud! For more helpful tips, tools and resources on fraud protection, including information on the latest scams, visit our Fraud Education and Awareness page.

If you believe you're a victim of investment fraud, report it to the SEC and notify law enforcement right away.