The Dark Side of Investing: Types of Investment Scams and How to Stay Safe

Investment frauds are quite normalized among our generation because we have heard about them so frequently that every alternate week or month, fraudsters dupe individuals or whole companies. These scammers are not afraid of anything, as it takes a good amount of time to track down a con artist. With the growth of social media, scammers have the upper hand over various types of investment scams.

Investment scammers on social media start defrauding investors by promoting their scams with the help of advertisements or by contacting them and getting into conversation.

Investors are drawn into such scams by multiple honey traps. Scammers try to lure as many investors as possible by marketing their fake campaigns on social media platforms and spreading the word among the investors. Thus, it makes the campaign look legitimate, as almost everyone is aware of it. Even these campaigns will lure investors by offering some freebies or, as the most popular offer, giving them free bitcoins.

Fraudsters come up with new ways and new tactics to lure investors into their scam, as there are numerous ways a scammer can execute their plan to scam an investor. There are different types of investment scams; I'll try to cover some of them, as the brief idea of such scams can help you recognize them in the future and avoid them, but before that, let’s look more into investment scams and learn about famous scams in the financial market.

Investment Scam

Investment scammers trick people into getting into investment scams and wiping out their funds. Such scams can lead to greater losses for investors and make them lose thousands of dollars, and thus, annually, these scammers make millions of dollars collectively by scamming individuals.

Such scams can be seen in the past too; there is one scam that is said to be the biggest scam of all time. I’ll list it down below, and you can also do proper research if you want to, which will help you understand such scams in detail.

Examples of the Biggest Investment Frauds

There are many big names who attempted the biggest investment frauds, and they looted millions of dollars from people. Some scams had been going on for over a decade; one such popular fraudster was Berni Madoff. Let’s take a look at the biggest scam in history.

Bernie Madoff

Bernie Madoff was one of the biggest fraudsters of all time and a perfect investment frauds example, as his scam ran for more than 17 years and duped over $65 billion. His investment management division started in the 1970s, but his fraudulent activity started in the 1990s. Bernie Madoff was apprehended in 2008 and pleaded guilty in 2009. Madoff implemented the Ponzi scheme and was providing good returns to his high-level investors. Later, he was arrested, and the feds recovered around $4 billion, which they paid to the victims.

Another such scam was conducted by Allen Stanford, who also used a ponzi scheme. There are many other fraudsters who used ponzi schemes to loot people, and apart from that, another famous scheme was the pyramid scheme. To know more in detail about investment frauds, let's look into the types of investment scams.

Types of Investment Scams

Annuity Fraud

Annuity frauds are scams attempted by the fraudster targeting an individual who has little knowledge of the annuity. Scammers mostly target people who are in the older age group. They contact them via phone or message and offer them an annuity.

In some cases, fraudsters collect all the information from the users by pretending to be an insurance agent; they misuse the information, but they buy the annuity and lock the user away so they can’t access the money in the future and take all the benefits of the annuity without providing it to the owner.

On the other hand, fraudsters never provide any annuity; they just convince the user to buy it, take all the essential information and funds from the user, and just disappear.


Ponzi schemes are classic old scams that have been running for centuries. The structure of the scheme is simple, but fraudsters have looted billions of dollars from people by fooling them into investing in their schemes. They try to lure as many investors as possible to invest in their scheme, and they guarantee future returns too.

For instance, they do provide some returns to high-level investors, and thus many investors start to believe in the scheme, but the fraudster provides little return from the money of new investors. Thus, it lures more investors, and the scam continues for a longer period. The endless cycle goes on until they are short of funds as the rate of new investors joining decreases or they are caught by officials.

Pump and Dump Scams

Pump and dump scams are another popular trap where numerous people are lured by promising them heavy returns if they invest in a particular stock, as the fraudster pretending to be a stock broker has a secret tip and knows if the individual invests now, he or she will get a good return. But all of these promises are nothing but lies; in short, they are targeting to grow the value of a particular stock, where the fraudster holds the majority of shares.

In pump-and-dump scams, fraudsters mostly pick penny stocks, as the victim can buy such stocks at a low price and get numerous shares. In an effort to attract as many investors as possible and raise the stock's value, they employ a variety of tactics, such as calling arbitrary individuals on their answering machine and offering fictitious tips while claiming they sent those messages by accident. A few days or so later, however, they sell their personal stocks, which precipitates a sharp decline in the stock's price. Thus, all the investors stay with worthless stocks.

Advance Fee Fraud

When an agency reaches out to you, they can ask you to invest in a particular sector, which can make you a good profit, but they ask you to pay upfront fees first. This is the first red flag of fraud a user should be aware of. They will have no paperwork for these upfront fees, and if they do, then it will be nothing but fake paper or receipts. There are numerous cases where people were asked to pay in advance, but the broker never called back, and they cannot contact them.

Real estate scams

Real estate scams are where people generally lose lots of money over time, and in many cases, it's tough to understand whether it's a legitimate investment or not. Because the claims made by the fraudster sometimes look legitimate, many of these scammers work in a sophisticated manner, making their business look real.

Generally, scammers rush the investors to make quick decisions, or they will lose the deal. They make investors make impulsive decisions, and they do ask for upfront fees in most cases. You should always take your time and consult your family or friends before investing in anything.

Recovery Room Schemes

Recovery room schemes are quite bizarre tricks that people fall for because con artists prey on those who have already been taken advantage of. They make people believe that they can get all their money back if they sign up for their scheme.

They promise the investor their returns and claim that if they can get a higher return in this scheme, they have to open an account on a trading platform or pay some additional fees. Despite being defrauded once, investors do invest in such schemes and fall for another scam, and they lose more money compared to what they lost in the previous fraud.

Pyramid Scam

The pyramid scam is a scam that has been going on for centuries in which a fraudster manipulates investors and convinces them to join their company and earn a hefty amount in the future just by adding more investors. Most MLM companies use this scheme, which has been banned in many countries because it serves no purpose other than to defraud people.

In a pyramid scam, a con artist recruits people with the promise of good profit and guides them to recruit more people, but for that, they have to make a payment first. Recruitment becomes challenging, and many people are unable to profit from the scheme and lose all of their invested funds.

Social media fraud

Social media fraud is increasing at a rapid pace, and people of all ages are being defrauded. Con artists have designed every type of scam to loot people of every age group. Through social media, they make people fall for the scam as they lure a huge number of people into it. With bulk entries, they dupe every individual by selling them the dream of getting bitcoins as freebies.

With high promotions and advertisements, fraudsters get a good amount of reach on social platforms, and with their giveaway or contest scheme, they make people enroll and share their personal details. As this scam leads to many niche scams, like phishing scams. They also promote their schemes through celebrities and famous influencers.

Government impersonation fraud

Government impersonation fraud is another scam attempted by fraudsters by faking their identity. Apart from government employees' impersonation, fraudsters impersonate many insurance agencies, credit card companies, or an agent from a bank. They try to collect all the essential information from you and use it for their own benefit or sell it on the dark web.

These people often sell their scheme as a part of a government scheme and target older adults, convincing them to buy such schemes. Try to avoid such fraudulent calls, and it will help you stay away from such scams.

Affinity Fraud

In affinity fraud, con artists dupe groups or communities; here, fraudsters target groups of people who follow a particular religion or ethnic community. They join such groups, pretending to be believers or followers. Later, they try to convince the leaders of the group to get involved in their scheme and promise that it can benefit the group or community. Thus making them fall into a scam. There have been many such affinity frauds reported till now, and they have connections with Ponzi scams too.

How to Report Investment Scam

If you are a victim of fraud or want to report an investment fraud, there are many options made available by the government for the victim to get in touch with authorities easily.

The victim can report the fraud to the local police, district attorney, attorney general, or get in touch with the Feds at their nearby office; these were the law enforcement options for the victim to report the fraud. They can even get in touch with regulators like the SEC, FINRA, and NASAA and report fraud.

How to file fraud charges against a company

If the victim is defrauded by a company and lost their funds, they can seek the help of a lawyer who has good experience in investment fraud cases. They know every tactic to fight against such companies. They will help you file a case against that company and give you every update on the case.


Winding up this article, I hope you now know most of the investment scams and have enough information to tackle them in the future. Most of the time, scammers make people fall for their scam by offering them goodies and promising high returns. It's up to us to tackle these scams and avoid them. If you see any red flags, avoid such scams and report them immediately.

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