investment scams

Investment Scams: How to Identify Them and Protect Your Money From Fraudsters

Investment scams are every where.  Have you ever wondered why?

People of all works of lives are increasingly realizing that investing their money is an incredible route to achieving financial security.  As a result there is a surge of demand for investment products.  In the same degree, investment offers are growing in their numbers to meet demand.

The trouble, however, is that fraudsters are cashing in on the euphoria to sell scams and defraud unsuspecting inviduals.

As a matter of fact, investment scams have become a common threats that investors, particularly beginner investors, face.  They are also increasingly becoming sophisticated.  It is therefore of utmost importance for investors to educate themselves, be informed to be able to identify the red flag and the methods scammers use to defraud their victims

That is exactly what this blog post will help you achieve.

Also Read: Top Best Performing Stocks in Nigeria Banking Sector 

What Are Investment Scams?

Investment scams are fraudulent schemes designed to deceive individuals or businesses into investing money in fake or non-existent ventures.  Such schemes often promise high returns but ultimately result in financial losses. Scammers employ various tactics to lure victims.  They often exploit their victim’s greed, fear, or ignorance about financial markets.

Types of Investment Scams

Investment scams come in many forms and here are a few of them including Ponzi schemes, pyramid schemes, pump-and-dump schemes, and more.

Ponzi Schemes

This is perhaps, the most popular investment scam; and the oldest.  Ponzi schemes are fraudulent investment schemes in which returns are paid to earlier investors from the capital contributed by newer investors, rather than from legitimate profits generated by the operation of a business or investment.

Usually, an operator of a ponzi scheme does not have a genuine underlying business to support the high return he promises to investors.  Rather the operator uses hypes to keep a flowing river of new investors.  He uses the investment of new investors to pay back previous investors.  Since the business model is unsustainable, the scheme eventually collapses, resulting in significant losses for most investors.

Pyramid Schemes

Pyramid schemes has a lot in common with ponzi schemes in that both rely on the continuous influx of new participants to survive.  However, while ponzi scheme are strictly investment offers, pyramid schemes could be a business which rely on the constant recruitment of new members.  Existing members get rewarded with a part of the the investment of new members and it goes on and on.

The scheme collapses the moment the tempo of recruiting new members fade.  Network marketing has often been seen as pyramid scheme.  However, while all network marketing can be said to be pyramid scheme, not all pyramid schemes are network marketing.  So you have to be careful.  Pyramid schemes are fraudulent and hence illegal.  Network marketing on the the hand, is legit business model that rely on the pyramid structure to thrive.

Pump and Dump Schemes

This relates to frauds in the stock market. It occurs when fraudulent investors, particularly portfolio investors artificially inflate the price of a stock through false or misleading statements and promotions.  As they keep pumping the price, retail investors get into the buying mode.  Meanwhile the price growth is not driven by any fundamental.  It’s artificial.

And as soon as the price is high enough, they dump the shares by selling at a significant amount of profit. Once they exit their positions, the price of the stock plummet and leaving the retail investors with worthless securities.

Advance Fee Fraud

In Advance Fee Fraud, the fraudster presents an opportunity which requires the victim to pay an advance fee before obtaining the benefits.  The opportunity can be a business, contract, an investment.  These supposed opportunities ultimately will never manifest.

In some other cases, victims are asked to pay upfront fees to obtain exclusive offers, only to discover that the promised opportunities do not exist. In Nigeria, this type of fraud is known as 419 deriving from s.419 of the criminal code which deals with obtaining money fraudulent using upfront payment scheme.

Cryptocurrency Scams

When it comes to investment options, cryptocurrency has become one of the mose preffered.  However, with the rising interes, come the activities of scammers.  Scamers keep developing various schemes to defraud hungry crypto enthusiasts with their hard earned money.  Some of the schemes fruadusters devise to defraund investors in cryptocurrencies include fake initial coin offerings (ICOs), Ponzi schemes, and phishing scams targeting cryptocurrency holders.

Forex Scams

Both forex and binary options trading, as well as evey form of online derivative tading are also prone to scams.  There are so many fraudulent online trading platforms focussing on forex, binanry options, stocks, commodity CFDs that promise quick and significant returns but ultimately end up losing mone. In many cases, these platforms manipulate the outcomes, making it nearly impossible for investors to profit.

How to spot investment scams

The first step to identifying investment scams is to understand the form and shapes they take.  This has been highighted above.  They are the common types of investment scams.  So whenever you are confronted with the decision to make investment exercise caution if you are presented with offers as above.

However, there are certain characteristics of investment scams that you must watch out for.  These are

1. Promises of Unrealistic Returns

Scammers will always make the offer sweet, juicy and irresistible.  Therefore, be wary of investments promising guaranteed, high, or quick returns. If it sounds too good to be true, it probably is.  No legitimate investment offering will give you a guarantee.  This is because there are market variables that are not within anyone’s control.

Also, beware of investment opportunities that claim to havever “no risk.” All investments carry some level of risk.

2. Unregulated Operators

Most fraudulent investment offerings come from the stable of unregistered and unregulated operatos.  They are therefore not accountable to regulatory agencies.   Ensure the investment opportunity is registered and regulated by the appropriate financial authorities in your country.

Verify the credentials and licenses of financial advisors, brokers, or individuals promoting investments. Ensure they are authorized to offer investment advice in your region.

3. Lack of Documentation

If an offer is not documented, be careful.  It is very likely to be a scam. Scammers often avoid providing written information or contracts. This is a way of avoiding responsibility.

Always request official documentation before investing.

4. Pressure to Act Quickly

Scammers may create a sense of urgency, pressuring you to invest immediately. Legitimate investments allow you time to make informed decisions. Never let fear of missing out (FOMO) drive your investment choices.

5. Unsolicited Communication

Most fraudulent schemes are offered via unsolicited communications such as bulk email, phone calls, sms and social media contacts.  Be cautious of such communications from unknown individuals and/or companies offering investment opportunities.

Do your own research and verify the legitimacy of the source.

How to Avoid Investment Scams

1. Research thoroughly

Investigate the investment opportunity, the company, and the individuals involved. Seek out independent sources and reviews to verify the legitimacy of the investment.

2. Consult a Trusted Financial Advisor

Seek guidance from a licensed and reputable financial advisor before making any major investment decisions. They can help you evaluate the legitimacy of an opportunity and ensure it aligns with your financial goals.

3. Portfolio Diversification

Diversifying your investments across various asset classes can help mitigate the impact of potential scams on your overall financial portfolio.

4. Trust Your Instincts

Your gut feelings can help you avoid fraud.  If something feels off or too good to be true, trust your instincts and walk away. Never let emotions override your rational judgment when it comes to investing.


Unfortunately fraudulent investment offerings have become part of the ecosystem.  They are a persistent threat to the investing public.   It is essential you are aware of the warning signes and take proactive steps to protect your finances .

True, legitimate investments may not always be the most attractive becuase they do not offer the high-return options. But they offer a far more secure path to financial growth. Stay informed, conduct due diligence, and consult with trusted professionals to safeguard your hard-earned money from potential scams.

Your financial future depends on it.

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