How to Identify an Investment Scam of Fraudulent Investment Schemes

The investment community has taken a considerable amount of heat over the last several years.  With so many different scams and schemes in the news lately it makes it feel like the dreams of making money through investing is long gone.  Not only has confidence in the stock market started to wane but even more traditional investments are taking a hit as consumers are finding even less confidence in long standing institutions. 

Even with all the doubt and depreciation of confidence, billions of dollars are still being investment each and every day through stock purchase, direct funding, and other investment concepts.  With all the billions of dollars in investments comes a great deal of greed.  This greed is what motivates those at the top of the numerous investment schemes and fuels the never ending supply of fraudulent investment options.  However, even with all the fraud and scams in investing there are still ways to avoid being taken for a ride.  With a little due diligence and attention to detail even the most inexperienced investor can spot a bad investment once they have the knowledge to do so. 

Everyone knows the saying that if it is too good to be true it probably is.  This couldn’t be any more true than in the investment world.  When huge promises of large returns are promises that seem to be unfounded they are most likely unreasonable goals.  Unfortunately too many people downplay this huge promise and think that even if they were able to achieve a small chunk of that gain they would make a ton of money.  This way of thinking is what gets a lot of people trapped into bad investments.  Rarely does a good investment have to say it is a good investment.  These investments sell themselves and normally have to be discovered.  When they are being promoted they are being promoted for a reason.  This is especially the case when the message is received through a random fax, phone call, or email that you receive.  It this information was unsolicited it should be considered highly suspect and approached with extreme caution.

There are hundreds of awareness groups that tout different stocks at different times.  These groups state that they make money making picks or that they have the best rates of return on their investments.  What they don’t like to state is that they are more often than not being compensated for this awareness.  This compensation means that they are no longer a reliable source for a solid stock pick.  They are simply trying to bring in buying so that the individual or company hiring them can make money selling their stock.  People don’t pay for awareness unless there is a financial reason behind it. 

Often times companies will even given away thousands of dollars in free shares in order to compensate those that are able to bring in buying volume on their stock.  This buying volume allows the company to sell shares to raise money.  Without the buying volume they would be unable to raise money in this manner.  This issue with this is that not only is the company going to sell but the promoter is going to sell their shares to make money as well.  With all of the selling often times the price will go down considerably from where it started out the day, even if it initially goes up in price.  This method of stock manipulation causes many investors to lose 20-80% within a very short period of time as more and more sales cause the price to drop further. 

The easiest way to discover a scam is simply by doing a little bit of research.  The fastest way is to visit a message board that is talking about a particular stock or google the investment itself.  By piggybacking off of the work of others, research can be expedited and a more informed decision can be made much faster than if all the research was done alone.  It is important that every aspect of the investment is researched.  Make certain that the individual in charge of the investment whether it be the CEO of a company or someone that is running a particular concept is researched heavily.  Look to see if they have a criminal history or to verify whether or not they have been charged with any SEC (Securities Exchange Commission) violations.  This is a pretty good indicator of their propensity to create a scam or get involved in fraud.  It is also important to look at anyone else that is said to be involved in the operation.

The next thing that needs to be looked at is the address.  Every investment opportunity should have some sort of address associated with it.  If there isn’t an address that is a sign that it isn’t a legitimate investment.  Consumers need to have a means of contacting someone regarding their investment and if that opportunity doesn’t exist it should be avoided.  A great way to verify an address is to look it up on Bing or Google Maps.  Often times with a scam company the address will either not exist or will be the address of some other type of business.  Once this is discovered it is simply a matter of calling that business to verify if they are still operating.  If the conflicting business is still operating then most likely you found a scam.  There are those that run a much better scam and will use an address in an office park that is a little more difficult to verify.  To discover if the company is truly operating out of this address it is advisable to call the leasing company for that office park and find out who the occupant is at that particular address.  If it doesn’t match up, most likely it is a scam.

Another good indicator of a scam is to see where email comes from.  If the company or individual is using a free email account such as a Google GMAIL or Yahoo or Hotmail then there’s a good chance it isn’t legit.  The operating should have an official email address and a website attached to it.  Many will claim that they are in the development stage and working on the website and email servers.  While this is a great excuse it isn’t one that should be accepted. 

Whenever an investment is discovered with potential it should be looked at closely.  Verify all of the details to make certain that the company actually does exist and that there is a real company attached to it.  By taking the time to do some due diligence it could save thousands in potential investment losses.  It is also important to trust your gut instinct.  If it just doesn’t feel right then there’s a very good chance that something is wrong.  If after doing several phases of due diligence it is discovered that the company is indeed legit, then much of the risk will be removed.

Most scams are going to revolve the idea that most individuals aren’t going to put all that much effort into their research.  This means that they just aren’t going to have to do as much covering of the bases in order to give the appearance of stability.  Most people will look no further than the literature that is presented to them and either make the gamble or not.  By taking a few extra steps huge losses can be prevented.