How to Spot and Avoid Investment Scams

Affluent investors are not immune to fraud. In fact, their wealth and appetite for high-return opportunities often make them prime targets for investment scams.

These schemes have evolved to appear more legitimate, leveraging digital tools, aggressive sales tactics and even pseudo-expert credibility to deceive savvy investors.

Recognizing how these scams work, and how to avoid them, is essential to securing your wealth.

Why Affluent Individuals Often Get Targeted

Investors with significant assets are vulnerable for several reasons:

• They are actively seeking higher returns. Many are drawn to alternative investments outside traditional stock or bond markets, such as rare coins, precious metals, or cryptocurrencies.
  
  
• They are often approached through exclusive channels. Fraudsters know how to craft deals that look custom-built for successful professionals. They often make their pitch seem exclusive and time sensitive.
  
  
• They may delegate decision-making. Those working with brokers, private bankers, or investment advisors may assume proper due diligence has been done by their advisors when it has not.

Scammers exploit these dynamics by constructing schemes that appear both lucrative and urgent. Understanding the mechanics of those schemes is the first defense.

Ponzi Schemes and the Illusion of Stability

Ponzi schemes continue to thrive because they masquerade as low-risk, high-return opportunities. In these scams, money from new investors is used to pay fake “returns” to earlier ones. 

There is no real profit — just a cycle of redistribution until the model collapses. Promoters first gain your trust. Then, they use their affinity with you to pitch these schemes as exclusive or “too sophisticated” for outsiders to understand. They use this mystique to avoid your scrutiny.

While one of the most infamous examples of a Ponzi scheme is the Bernie Madoff scandal, modern Ponzi schemes are often smaller and operate under the radar. Their targets include professionals, retirees and small business owners.

Red flags include:1

• Promises of consistently high returns regardless of market conditions.
• Vague or secretive investment strategies.
• Difficulty withdrawing funds.
• Not registered with regulators and/or sold by people without a professional license.

Sophisticated Pump and Dump Schemes

Originally associated with penny stocks and cold calls, pump and dump schemes have adapted to today’s digital investment culture. These frauds begin when promoters artificially inflate the price of a low-volume security through misleading statements.

They often use social media, investment newsletters, emails, fake news releases, or even private investment groups to hype the stocks and create a buying frenzy.2

Once they “pump” the price to an artificially high price2 the fraudsters "dump" their shares. The stock price plummets, then collapses — and you lose your money.2

Unsolicited stock tips, particularly those involving microcap stocks traded over-the-counter (OTC) securities at extremely low prices, are a hallmark of pump and dump schemes.3 These scams frequently target traders looking for “hot” tips or undervalued plays in speculative markets.2

Fake Investment Opportunities That Look Too Good to Question

Some scams don’t fall neatly into Ponzi or pump-and-dump categories but still carry heavy losses. Known broadly as “fake investment schemes,” these scams can include:

• Unregistered precious metals or coin investments.
• High-return crypto mining or staking opportunities.
• Real estate schemes, like real estate funds with no track record or licensing and mortgage fraud or property flipping schemes.3
• Business scams including ransomware, scareware, fake utility and fake documents schemes.
• Pig butchering, where scammers build fake romantic or professional relationships online and trick victims into phony investments, often in crypto.

Fraudsters often manufacture urgency, pushing potential investors to commit immediately under the pretense of rare, fleeting opportunities.