How to Catch Investment Fraud

Investment fraud has grown popular over the years, threatening trust and confidence in the financial market. It causes financial and emotional losses to individuals and business owners, some of whom never recover fully. Fortunately, there are ways to catch investment fraud early, which we discuss in this article. If you have been defrauded, you may seek legal remedy in court, depending on the facts of the case.

What Is Investment Fraud?

Investment fraud is a deceptive scheme designed to gain financial advantage over investors. It takes various forms but typically involves deliberately misrepresenting or withholding facts to mislead investors into giving away money, mistakenly believing they are investing. Classic examples include Ponzi and pyramid schemes, advance fee fraud, pension scams, and cryptocurrency fraud.

Investment fraud can have adverse implications on individuals and businesses. Besides the financial loss, some investors lose trust in the financial market. There are emotional and reputational implications, too. It’s crucial to do proper due diligence before advancing money or transferring assets to anyone, regardless of your relationship.

Examples of Investment Fraud

Fraudsters use different methods to deceive investors to gain financial advantage. Here are some common examples:

• Ponzi and pyramid schemes: These are based on the same concept — the continual flow of new investors — but they have distinctive structures. With Ponzi schemes, the fraudster takes money from new investors to pay earlier investors as “returns” for their investments in a nonexistent or fraudulent enterprise. With pyramid schemes, the initial investor recruits new investors and receives payments from them for their participation in the scheme rather than providing a product or service.
• Advance fee fraud: This occurs when fraudsters persuade investors to make upfront payments in exchange for a lucrative investment opportunity. Once paid, the scammer disappears, and the promised investment never materializes. Advance fee fraud is one of the most common and oldest tricks.
• Retirement investment and pension fraud: These deceptive practices target retirement savings and pension funds. The fraudster promises high returns, misrepresents investment opportunities, or manipulates pension plans to exploit contributors. Pension fraud can also occur when a fraudster acquires personal information and uses it to steal money or when a fiduciary embezzles pension funds.
• Cryptocurrency fraud: Cryptocurrency investment has grown popular in recent years. However, because blockchain-based digital currencies are largely unregulated, it’s relatively easy for scammers to defraud investors without a trace. Fraudsters often create fake exchanges and contact investors in the guise of investment managers to persuade them to transfer money into an online account.
• Real estate scams: Fraudsters sometimes use real estate investment as a cover to illegally obtain money from investors by enticing them to invest in nonexistent or overvalued properties. Examples of the techniques used include fake home listings, inauthentic escrow payments, and promises of foreclosure relief.

How Do You Determine an Investment Fraud?

Fraudulent schemes can be complex, but the following can help you detect them:

• Due diligence and background checks: These proactive countermeasures help individuals and businesses assess the legitimacy and credibility of investment opportunities and gather information. The process includes checking the investment manager or advisor’s registration licenses, business registration information, reputation and track record, financial statements, and regulatory compliance information. Besides detecting fraud, conducting proper due diligence can also offer legal protection.
• Monitoring investments and keeping records: Monitoring your portfolio can help you spot irregularities or inconsistencies, potentially indicating fraudulent activity. Adequate record-keeping enables you to compare information and verify its accuracy. Combining these processes can help you catch falsified documents, unauthorized transactions, and unexplained fees.
• Establishing clear communication channels: Clear communication gives you access to reliable information. It allows you to ask questions, seek clarification, and report suspicious activities efficiently. Ultimately, transparency, information flow, and fraud detection are all improved.

Top Four Signs of Investment Fraud

Here are four common investment fraud signs:

1. Unrealistic Returns and Promises

One of the clearest signs of investment fraud is unrealistic high returns. Investments are designed to yield returns. However, you should be concerned if the offer is too good to be true. Fraudsters often entice individuals with unusually high or guaranteed investment returns. They sometimes justify the promise by claiming exclusive access to lucrative opportunities. Others also claim to have discovered secret investment strategies that enable them to make abnormally high returns. Be skeptical about such perfect offers because legitimate investments generally involve some risks.

2. Overly Complex Strategies

Some investments are complex but never impossible to explain. A legitimate investment manager or advisor will typically be capable of describing how the investments work to the understanding of a reasonable investor. Plus, it should be relatively easy to research. Unclear explanations breed confusion and lack transparency — that’s where fraudsters thrive. They feed off the investor’s lack of knowledge and leverage that to sell them nonexisting or overvalued investments. If any investment opportunity seems too technical, hire a professional immediately for guidance.

3. Aggressive Sales Tactics

Most investment opportunities have closing windows, but it’s best to stay away unless you have sufficient information. Fraudsters often create a sense of urgency to pressure investors into making quick, uncalculated investments. They claim that limited opportunities are available or assert that it’s time-sensitive. These high-pressure tactics prevent the investor from conducting proper due diligence, which would have enabled them to detect the fraud. Legitimate investments should allow sufficient time to evaluate and make informed decisions.

4. Unregistered Businesses or Unregulated Investments

Businesses and investments must comply with several regulations. These regulations are designed to protect the financial market and consumers. Thus, if it’s challenging to find sufficient information about a purported investment opportunity or company, it’s likely a fraudulent arrangement. Fraudsters often refuse to register their businesses to avoid being detected.

Additionally, transact with licensed professionals and invest in regulated investments. If you are investing in cryptocurrencies, consult a trusted investment attorney or financial advisor to help you make an informed decision.

What to Do if You Suspect Investment Fraud

Follow these steps if you suspect investment fraud:

1. Stop Further Investments

Cease all further investments when you suspect investment fraud to mitigate your losses. If payment to the investment account is made through financial institutions, instruct them to desist from transferring funds to the alleged fraudster. The financial institution can also help you track and trace the illicit transactions.

2. Gather Evidence

Collect all transactional documents and correspondence, including investment contracts, financial statements, bank transfers, receipts, and emails. Other information, such as the business name, location, and witness testimonies, are also relevant. You may need them to prove your case in court.

3. Contact an Investment Attorney

Contacting an investment attorney immediately is crucial if you suspect investment fraud. They can evaluate your situation to determine whether there is a case for investment fraud and develop practical strategies, such as instituting legal action. There are civil remedies for investment fraud, including compensation and injunctive orders.

Contact Calabrese Law Associates for Legal Support

Calabrese Law Associates is a renowned private investment law firm providing legal solutions to individuals and businesses. We serve clients in the Greater Boston Area and throughout Massachusetts. Our contract and investment attorney, Peter Calabrese, has handled diverse and complex investment fraud cases, gaining helpful professional experience. We offer supportive, tailored legal services and are ready to meet your needs. Contact us today!

This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.

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