Investment scams come in many forms and the Internet has just made it easier and faster for these vultures to feed on investors tempted by the possibility of an inside deal.
The people who run these scams range from the very crude and clumsy to the highly polished and sophisticated who wrap their con games in such an air of legitimacy it may be hard to see the truth.
The ScamsWhat do these scams look like? There are many different types floating around the Internet, so it would be impossible to identify them all besides a new one will pop up tomorrow. However, there are some signs you can look for:
- Someone you dont know promises you an inside deal. Why would a stranger pick you out to make rich? Does that make any sense?
- You are offered a cant miss trading system guaranteed (or your money back) to make you rich. There is no such system and if there were, why would anyone want to sell it?
- There are no secrets, no passwords, no unrevealed whatever. Dont pay for anything like this.
- Someone has a very complicated scheme involving offshore bank financing or gemstones or oil leases in Uzbekistan to make you rich. Why get involved in a complicated scheme you dont understand (theres a reason you dont understand it its designed that way), when there are plenty of opportunities that are legal and you can understand.
Popular ScamOne of the most popular stock schemes is called pump and dump. Heres how it works.
A group of crooks buys up a block of stock in a little know company, preferably one that has a semi-exciting technology name. They get on the Internet and begin flooding cyberspace with false rumors about how this company has some breakthrough technology or just signed a super deal.
They may even develop phony letterhead and send out press releases about the company. In some cases, the company knows nothing about the scheme. It becomes a victim too. In other cases, company insiders execute the scheme.
If the crooks are successful, the stocks price will jump as they convince people they are getting in on the ground floor of some big deal.
After the stock goes up, the crooks decide when they think it has gone as far as it will go and then they sell their big block of stock for a fat profit. When they sell, the price drops and all the people they conned into buying lose money.
A variation of this scheme is for the investors to short a stock then hop on the Internet and spread lies about how the company is in trouble or about to face some criminal proceeding. When the stock drops, the short sellers cover their positions for a big profit.