When it comes to investments, all that glitters is not gold. While you can never invest without risk, some investment schemes are outright fraudulent and set you straight for failure.
But how can you avoid investments that are too good to be true? Even most importantly, how can you tell if you are a victim of an investment scam? Read on to find out!
1. It’s a Unique or Time-Sensitive Opportunity
One of the biggest red flags is when brokers claim they have a unique, once-in-a-lifetime investment opportunity. The market just doesn’t work that way. If an investment scheme claims to be unique, then it’s most probably a scam.
Thanks to market equilibrium, every investment scheme can be copied and scaled up, so unique investment opportunities just don’t exist.
The same holds true for time-sensitive offers. If a broker claims to have an incredible deal, but only if you purchase within a limited timeframe, then walk away. In finances, there are no one-off opportunities. Investing is no lottery, so if something works, it is going to work regardless of timeframe.
In fact, scams that try to urge you into buying as soon as possible aim to prevent you from researching further or thinking it twice. Be wary of brokers who want to close the deal faster than you do. If a broker skips due diligence and just goes for the contract, walk away.
Unique-sounding scams may use nonsensical jargon like “premium placement” or “exclusive lending club”. These are almost always just ruses to misdirect newbies into scams.
2. It Comes with “Guarantees”
There are no guarantees in investing. Period. All investments come with a certain degree of risk, and even the most seasoned brokers can’t guarantee a specific return.
If your broker claims to have a “surefire” deal with guaranteed results, they are probably just trying to scam you. According to market equilibrium, it is impossible to guarantee a specific return.
The only caveat here is when your broker is offering you bonds, Certificates of Deposits, or fixed-term securities, which are fixed income products. Fixed income products are the only investment opportunities with guaranteed results, but scammers will never try to use them in their schemes.
3. It Relies on a “Revolutionary” Business Model
Similar to the “unique” investment opportunities, revolutionary business models are another red flag. Economics is a real science with millions of experts worldwide. The chances that your broker has developed a new business model before anyone else are virtually zero.
Investment scams will often try to lure victims with terms like “groundbreaking method” or “disruptive technology” which are often just fronts for a Ponzi scheme. These scams will claim that a company holds a patent that would transform the industry, so you better buy their stock quick.
Many scammers will suggest you put all your assets into such an investment to maximize your return. In fact, this is reckless advice that can get whoever gives it into legal trouble. If you have been the victim of such a scam, you may be able to recover some of your assets through investment loss recovery.
4. The Scheme Relies on Referrals
Referrals are the essence of all pyramid schemes. If an investment scheme accepts you only through referral, you should stay away. Even worse, if that scheme asks you to refer more investors once you are in, you can be certain they are trying to scam you.
Relying on social pressure and referrals is one of the oldest scams. The scammer will start the scam by paying off the first “tier” of victims, making them believe they actually made that money from their investment.
The scammer will then ask these victims to persuade friends and colleagues to sign up. Every new “tier” of victims will bring money to the scammer and everyone above, but only the person on top of the pyramid ever wins.
So, avoid any investment schemes that rely on referrals or ask you to refer more people in order to increase your return.
5. They Are Not Registered
All legitimate brokers must be registered with the U.S. Securities and Exchange Commission or another government agency. If a broker is unregistered, they are by definition shady.
Many scammers will claim to be registered. However, when you ask them for verification they will make excuses or provide you with fraudulent credentials. Keep in mind that some scammers may, in fact, be registered, so this is not a perfect protection.
Also keep in mind that unregistered investments are not always scams, but brokers who offer such to beginners without being registered are usually scammers. Unregistered investments do not adhere to the usual laws and regulations, and can be a lot riskier than conventional investments.
6. Roll Over vs. Cash Out
You should avoid a scheme that doesn’t allow you to cash your money out whenever you want.
Many scams will offer you the option to “roll over” your earnings to the next month in order to maximize your returns. This is fine by itself, as long as you have the power to cash out your money instead. Avoid any investments that limit your ability to access your money.
Again, keep in mind that the only investments that should hedge your ability to cash out are fixed income products, as we have seen above.
7. They Offer Abnormally High Returns
Finally, if it looks too good to be true, then it’s probably a scam. Market equilibrium means you can’t expect abnormally high returns, because there are millions of investors all playing the same game as you.
Avoid investment opportunities that promise insane returns in a short timeframe. These are nothing more than get-rich-quick scams.
Are you an Investment Scam Victim? We can Help!
If you have lost investment money due to negligence, investment scam, omission, or misconduct, don’t lose hope. Investment professionals are accountable for a standard of due care. When they fail to provide accurate information, or even give you fraudulent advice, you may be able to recover damages.
Investment loss recovery is a delicate process, and suing your broker should not be done lightly. To discuss the specific details of your case with an experienced stock market loss attorney, contact us or call us at 813-251-4890 today.