Investment fraud is the act of tricking individuals into thinking they are going to receive large amounts of money with little to no risk if they make an investment. When the investors try to claim the money, they realise that the big payout they were promised does not exist and their money was not used for their benefit.

Scammers usually provide a proposition that is too good to be true to attract unsuspecting victims. They claim that they are contacting them from a well-known company, they have a lot of experience, many clients and profitable investments.

In reality, none of that is true. The company does not exist and the scammer is not who they say they are. The money the individuals deposit does not go towards their investment. It will be difficult to get the money back as they willingly gave the money to the scammer, however, it is not impossible.

Investment fraud greatly increased in the last few years as the interest in stocks has increased and people are looking for ways of making money quickly. Businesses may be directly or indirectly affected by it as their employees may suffer consequences or make uneducated decisions on behalf of the company.

 One of the most popular ways to find new victims is to contact them through the phone but the popularity of mobile apps and fake websites is increasing. Phishing is another way criminal might choose to contact their victims by sending them fake but genuine-looking emails and SMS.

Common investment fraud examples

Criminals always find new ways of scamming people out of money. Some of the most common investment fraud types are:

  • Cryptocurrency
  • Ponzi schemes (Bernard Madoff)
  • Romance baiting
  • Securities fraud


As cryptocurrency has become more popular, there is a larger target market for scammers to attack. An individual may choose to invest in a digital currency which they believe will be profitable for them and will be the next ‘bitcoin’. Many times, there is no guarantee that a coin is legitimate and will survive. When people choose to invest in a cryptocurrency they have very few laws that protect them from scams. They could potentially lose a large amount of money as the developer of the coin takes it down and keeps all the investments they received.

Sometimes, victims may receive calls from a financial advisor, directing them to which cryptocurrency they should invest. They ask for money so they can buy the coin on their behalf and then provide them with fake receipts and figures to show that the investment is real. The scam may stop at just sending a receipt or they might keep calling the victim to collect more cash if they find that they have successfully tricked them. If the investor asks to withdraw some of their profit the scammers become unresponsive and then disappear.

Ponzi Schemes

In a Ponzi scheme, the scammers promise investors amazing returns for their money. They approach different individuals, give them small returns and coerce them into investing more. When they collect money from one person they give some of it to the other as a profit. As more people get hooked, the scammer struggles to keep up with the promises they make. They disappear with the money they gained and victims lose all of the money they invested.

This type of investment fraud was named after Charles Ponzi in 1920, but one of the most famous Ponzi schemes took place in 2008 when Bernard Madoff scammed investors out of approximately $50 billion. His scheme ran for 15 years and he was eventually sentenced to prison for 170 years.

Romance baiting

As people look for love in dating apps, scammers look for potential victims. A criminal may approach an individual and try to pretend like they are interested in a relationship with them. They earn their trust and try to convince them that they want what is best for them. Once they have made progress in their ‘relationship’, they offer the victim an ‘once in a lifetime’ opportunity by presenting them with a clearly profitable investment. The victim is not suspicious as they trust the person they are talking to. They invest their money and the scammer presents them with a high return to convince them to invest more.

The victim will never receive the profit they earn for their investment. The money will go directly in the account of the scammer.

Securities Fraud

Securities fraud can be committed by an individual or an organization. Scammers misrepresent information about a stock or the financial market in order for it to seem favourable. The criminal gives them data that may be deceptive, such as business profits and company credit. The aim is to withhold important information to encourage the investor to make a decision without knowing the full picture.

Securities fraud includes the pump and dump scheme. Scammers buy some stocks and then raise the popularity and interest in those stocks. They give out false information so more people buy the same stocks so their price can increase. Once the price increases, the scammers sell their part at a profit, causing the stock price to drop significantly. This means that the investors see an instant loss in their portfolio or a break-even.

Investment fraud

How to identify investment fraud

One of the main ways to identify investment fraud is if an opportunity sounds too good to be true and appears risk-free. This should be a red flag, as investments are always accompanied with some level of risk. Lower risk does not usually mean high rewards. Some warning signs include:

  • Pressure to buy
  • Personal information collection
  • International caller
  • Lack of communication

Pressure to buy

Scammers tend to be very pushy and have different tactics to pressure victims into making the wrong decision. They might create a sense of urgency by telling them there is a shortage of stocks or cryptocurrencies so they need to invest fast. They are making them feel like they are going to miss this amazing opportunity so they do not give them time to think or react.

The scammers may give individuals fake websites that claim that these assets are expected to soar. If your business is known in the financial sector, then criminals may use it as a convincing tool to encourage investors to buy by claiming they work at your company. The time constriction will not allow an individual to confirm that this is the case and later on they might develop negative feelings towards that company.

Personal information collection

Most of the time the scammers will ask victims to provide them with their personal information. They may ask for bank details, credit cards or send them a suspicious website for them to deposit money into an account. If an individual asks for a safer alternative they might try to convince them by saying they are very experienced and secure and ‘everyone is doing it’. This will make the victim feel as the outlier and they will probably give in if they believe the claims.

International caller

The fraudsters may approach an individual by giving them incentives. One of them may be a tax-free investment that will generate money solely for them without having to pay anything to the government. They try to oversell it by saying it is an international investment and their funds will not be affected by national rules. They might claim that they have insider information in a company and the victim will not have access to it as they are from another country.

They try to convince the victim that they know better and are more educated than they are. They know the international financial market better but they do not provide any evidence of the assets being registered. The people who usually fall for these traps are those who want to make investments without their families knowing. It could also be an employee within a company who is mishandling business money for their benefit and they do not want any trace of the transaction to appear anywhere.

Lack of communication

When an individual receives an attractive offer, it is usually unexpected. The person at the other end is a stranger with little guarantees about their identity. They may use words like ‘amazing gains’, ‘virtually no risk’ or ‘hidden gem’ to convince the victim that their offer is the best they ever encountered. However, when the victim is trying to ask questions, the fraudster avoids answering them or provides them with false answers. If it sounds like they are trying to dodge questions, then it is probably a fake investment.

The fraudster may also refuse to provide proof of their license. Financial advisors must be licensed with the SEC in America or the ASIC in Australia. Every country has its own equivalent and to verify the identity of the caller individuals can research their license number and information.


Investors need to consider how much they are willing to lose before making an investment. They should not offer money they need for necessities, only disposable income. This will minimize the damage investment fraud can have on their life. Investors must understand that returns on investments will not always provide consistent returns. They may make a loss before they can make a profit.

One of the main reasons why investors fall for investment fraud is because they do not investigate the claims and trust them without doing their own research. It is crucial for an individual to obtain their own information before they deposit or give money to anyone. The most important thing to remember is that if something sounds too good to be true, it probably is.