Anatomy of a Scam: Investments

Investment scams are very common in the U.S., and anyone can become a victim. But for older Americans and retirees saving for or living on a fixed income, losing money to one of these scams can be devastating.

How Investment Scams Work

Investment scams often lure their victims with promises of high returns at little to no risk, and as a way to make a quick buck. The idea of easy money is attractive to many, which is why so many people take the bait.

In fact, a recent FBI Internet Crime Complaint Center report noted the department found over 30,000 victims of investment fraud in 2022. Those victims lost more than $3 billion, a significant increase since 2021. [1] According the FTC, Americans aged 60 and older lost more than $400 million to investment fraud in 2022, up 175% from 2021. [2]

Typical investment scams include:

• Coaching scams. A scammer touts their secret process for getting high returns on securities or real estate without easy-to-verify proof. Then, they encourage their victims to attend free events or webinars. But to get the secrets, the victim must first pay high coaching fees. [3]
• Precious metals scams. An expert contacts their victim and tells them they must act immediately to secure a deal on precious metals. Under pressure, the victim sends money to the scammer and the scammer runs off with it. [4]
• Cryptocurrency scams. A fraudster promises they can get big returns for investors with no risk. The victim must buy a small amount of cryptocurrency, which the scammer stores in their online

crypto wallet. [5] When the victim tries to withdraw the funds, the money is either gone or they must pay a significant fee to get it back. [6]

Along with increasing dollar amounts being taken and newer types of scams (i.e., crypto) appearing, fraud tactics are evolving too. As Americans spend more time online, it’s opened the door for other ways of conducting scams, especially through social media. When you or your loved ones are online, be wary of anyone posting about amazing investment opportunities.

A Common Example of an Investment Scam [7]

It may be easier to become a victim of an investment scam than you think. The fictional story of Bob Schott may help illustrate it. While Bob is not real, this scenario resembles how these scams often work.

Bob Schott has recently entered retirement after a long and fulfilling career. Throughout his working years, he built up a significant amount of savings and investments so he and his wife can have a comfortable retirement.

Now that Bob has more free time, he’s considering his legacy. He’d love to leave money behind for his grandchildren. Bob wants to help them pay for college, grow a business or buy a home and start them off on the right foot. But the retirement fund needs to last, so he has to be careful about how much he can set aside for the grandkids.

To generate extra money for the inheritance, Bob explores investing options outside the plan he’s set with his financial advisor. He spends a few hours a day reading newsletters and forums. Another investor in a group he follows online claims to get consistently high returns from a particular “investment expert.” Bob looks into it and reads some glowing testimonials but finds all of the expert’s secrets are shared only with those who sign up for an online investment course.

After doing some research and reviewing some of the expert’s financial statements, Bob feels confident that it’s legitimate. So, he takes a chance and joins the course, paying $300 dollars a month. Eventually, the expert offers to personally coach Bob and place his money in investments that will earn high returns. The expert earns Bob’s trust over time, which unfortunately leads Bob to share too much personal and financial information.

The expert convinces Bob to place money in fake “high-return” investments – managed by the expert – and also steals thousands from one of Bob’s bank accounts. Not only that, Bob tries to cancel the subscription but finds it nearly impossible. Another three months go by before he can finally cancel, but he’s lost all the funds he set aside to grow for his grandkids.

How to Prevent Investment Scams

With so many fraudsters and scammers targeting your finances, keeping your guard up is important. But it’s not always possible to detect every potential scam. Knowing what to look for and how to protect your money can make a difference.

Pay attention to these red flags: [8]

• Guaranteed returns. No investment carries zero risk. Typically, higher potential returns come along with greater risk. The adage ‘if something sounds too good to be true, it usually is” applies to investments as well.
• High-pressure sales. An often-used tactic scammers use to get people to hand over their hard-earned money quickly is to put victims into high-pressure situations. They’ll say the victim must send the money today, or they’ll miss out.
• Unsolicited offers. Fraudsters often contact victims out of the blue. They’ll offer investment advice, secret deals or invitations to expensive seminars. Each of these has the hallmarks of a scam.

If you think you or a loved one may have been contacted about an investment scam, here’s what to do:

• Be wary. Scammers have many ways of reaching out to victims today, from phone calls to email and social media. If you’re contacted by someone you don’t recognize, hang up or end the communication.
• Do your research. Go online and research name of the company or the details provided. In your search engine, try entering the name of the person or the company along with the search terms “complaint,” “scam” or “review” to get more information. [9]
• Check financial licensing and registration. The Security and Exchange Commission’s gov site has a search database for registered investment advisors and firms. Use that to search the licensing for the people contacting you.

Help Protect Yourself from Investment Scams

Falling victim to an investment scam can significantly impact your financial well-being, especially in retirement. That’s why it’s critical to pay attention to the warning signs so you can help protect yourself, your loved ones and your nest egg from fraud.

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