How to Avoid Being the Victim of an Investment Scam

Hold up — while you are there laughing out loud, thinking to yourself, “Who the hell falls victim of investment scams?” — stop yourself right there. Because according to an article published by Forbes, the most likely victims of investment scams are those who think that they will never be victims of the said scams. (1)

So while you are confident to know that only frail and old people fall victim to investment scams, you are certainly wrong. That’s more then enough reason to continue reading further, as to how you can avoid falling victims to such scams. (1)

What are investment scams?

Investment scams come in many forms and in different shapes and sizes.

The Pyramid Scheme is probably the most popular. The best way to spot a pyramid scheme is when you are being recruited into the “system” (pyramid) and in order to get in, you would have to pay a certain amount of buy products or services for a specified price. You are then promised a return for every other person you recruit into the system. (2)

There are also the affinity frauds, that happen on close knit communities where people generally tend to have full trust with fellow members of the same communities. These can target ethnic groups, religious movements or marginalized people. (3)

And because of the rapid technological advancement of the last two decades, internet frauds have also risen to popularity. These internet frauds prey on the non-technologically inclined, offering them to invest into a certain “online” company that doesn’t really exist. (3)

I’ve given three of the most common forms of investment scams, and you can already see the overlapping qualities of each: the victim is asked to “invest” into the “business”/”company”, with the promised return of a huge amount, but in reality, these “businesses”/”companies” will run away with the money, without actually returning everything. (4)

So how do you actually avoid them?

1. Learn the signs

The most effective counter against an investment scam is to be fully aware that you are actually being presented an investment scam. There are lots of signs that you can check (if it applies to the offer being offered to you) and even the Securities Exchange Commission has devised an effective checklist to validate whether an offer is an investment fraud or not. (5)

According to the latest episode of Swak na Swak, under entrepreneur and media personality Chinkee Tan’s segment, here are three of the main telltale signs that an offer is, in fact, an investment scam. (6)

It comes from a person you trust

The main reason why people who think they are immune to investment scams are the most likely victims of the said scams is because these people are the less suspecting. Often, the people who recruit the victims into the scams are their relatives or close acquaintances. (1)

That’s why if a family friend is offering you this investment a million into their company, with the “promised” return of the investment, think very carefully. And because they are your family, if they do not show up with results quick enough, you are more willing to forgive them and give them extra time.

The promised return is high

Chinkee Tan warned that if the promised return of the investment is high, very high, with an annual compound rate that exceeds 2%, do not think twice that it is actually a scam. While it sounds like it is quick, easy and lots of money, it is certainly not the case.  (8)

There is a reason why banks can’t offer rates of more than 2% — because it is impossible to do so, without losing anything in return. This is called the Rule of 72. The Rule states that compound interest compounds or piles up year after year after year, and if it reaches an overly high maximum point, there would eventually be losses to the lending company/system. That’s why you have to start at a very small rate. (7)

If you are confused, walk away

Investment scams require you to invest on a certain business or a certain company. If the scammer has done a bad job explaining to you what the business/company is about, and you are confused as to what it is, it is much better for you to not invest on a business you understand nothing about.

The reason why the explanation of the business is blurry, is probably because the person explaining it to you doesn’t understand it either. Either because the business does not really exist or arrangements for the business to come into existence was not taken care of properly. Or both.

2. Learning how to walk away

Now that you are most certainly sure that you are being presented into an investment scam, DO NOT PANIC. Calmly walk away from the situation and pretend that the whole ordeal never actually happened. (5)

Do not engage yourself with them any further. Do not ask anymore questions about the said investment. Do not make yourself appear like you are interested further in the offer. Do not make comments about how you need money. Do not mention anyone in your life who is in the same type of “business” as well. (8)

Instead, simply refuse the offer STRONGLY and assert that you do not want anything to do with their little gimmick. If you appear any more interested, these people will take that opportunity to shove this offer down your throat.

They will tell you phrases such as “everyone is doing it, so it must be legit” or “it’s limited edition!” in order to get you to invest in the snap of a finger, but do not let yourself be overcome by these scammers. Assert dominance and stand firm to your decision. (8)

3. Learning how to break away

If you have done your part of refusing them strongly and on multiple occasions, but they still have not given up on their offer, it is possible to call the police on them. Not for FRAUD but for HARASSMENT, provided, of course, that there are enough evidences for what they are doing to you to be classified as harassment.

Compile together CCTV footage, text messages and other messages before filing your complaint. This is to make sure that the police takes the matter seriously, and something will be done to these scammers.

It is difficult to take matters into your own hands and report them as “scammers” if there is not enough concrete evidence to prove this part. Often, when people have already become victims, they realize that they are also at fault according to the law due to the lack of a written black and white agreement (a contract), or the contract that was drawn was spotty.

Raise awareness. Share this to others.

References:

1. https://www.forbes.com/sites/bobcarlson/2018/06/26/whos-a-likely-scam-victim-not-the-people-you-expect

2. https://youtu.be/SBGfHk91Vrk

3. https://www.myretirementpaycheck.org/How-My-Paycheck-Works/Fraud/Common-Types-of-Investment-Fraud

4. https://money.howstuffworks.com/personal-finance/financial-planning/investment-scams.htm

5. http://www.sec.gov.ph/public-information-2/investors-education-and-information/investment-scam-checklist/

6. https://chinkeetan.com

7. https://www.investopedia.com/ask/answers/what-is-the-rule-72/

8. https://www.securitybank.com/blog/dont-get-scammed-how-to-spot-investment-scams-in-the-ph/

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