Spotting investment fraudsters is not easy. However, there are certain warning signs you should look out for that may indicate their activities.
Be wary of testimonials or celebrity endorsements that claim they possess exclusive inside information – these could be paid actors or staged videos. Investment organizations claiming this knowledge should also raise red flags.
1. They’re a slick salesman
Scammers employ deceptive marketing strategies to entice victims into investment schemes. They may promote these scams via emails, social media and messaging apps and may try to create a sense of urgency by promising that if you do not act fast enough then opportunities may pass you by.
Complex language may also be used to disorient and discourage you from seeking second opinions, or discussing it with friends and family – which should serve as a red flag.
Be wary of investments that sound too good to be true. Fraudsters will often offer investments with high returns at minimal risks such as real estate, cryptocurrency, financial coaching or gold; often using testimonials from paid actors who claim that these investments have yielded tremendous returns.
2. They’re too good to be true
Of course, most of us are familiar with the old saying that goes “if it sounds too good to be true, it probably is.” Investor scams can easily fit this mold; typically promising high returns with minimal risks at minimal risk and using scarcity (such as limited investment opportunities or time left) to lure investors. Unfortunately, these schemes are hard to verify.
Fraudsters may attempt to manipulate the market by spreading negative rumors about certain stocks in order to sell them at artificially reduced prices, or by pushing microcap fraud shares (low-priced shares issued by small companies). You should exercise extreme caution if an unsolicited call, text message or email touts an investment opportunity.
Always ask how an investor obtained your contact details and for proof of their credentials – legitimate investors should provide this information in order to validate their claims. Also be wary of posts on your social media accounts from individuals purporting to be brokers, investment advisers, or sources of market information.
3. They’re too quick to commit
Legitimate investment professionals will give you time and space to conduct due diligence before asking you for money. If someone pressures you into investing quickly, this should serve as a warning sign and prompt further investigations.
Avoid investments promising above market returns as these types of returns are the hallmarks of investment fraud. Also be wary if someone encourages you to purchase an inexpensive stock; this could be an indicator of microcap fraud where scammers spread negative rumors to manipulate share prices and manipulate the share price accordingly.
Utilizing Themis’ self-serve search function can assist founders in verifying the identities of potential investors. Even just spending a few minutes checking backgrounds of those seeking to invest can save much heartache in the future – not to mention any possible connections to fraudulent, money laundering and sanctions evasion activities.
4. They’re a stranger
Any unsolicited investment offer should be treated with extreme caution – particularly from someone you do not know well. Fraudsters frequently exploit trust between people through affinity fraud. If a stranger approaches you out of nowhere with an offer of investment that requests secrecy or confidentiality as part of the deal structure, that should also raise alarm bells. As a startup founder, it is imperative that you remain alert against scammers and keep extra due diligence checks when dealing with strangers; every dollar saved is one more dollar earned!
