11 Notorious Investment Scams Exposed

Investment scammers defrauded $8.8 billion from unsuspecting consumers in 2022, a staggering 30% year-on-year surge.

Don’t fall victim to NFT, Crypto, Forex, Ponzi, or offshore scams. Arm yourself with the knowledge to spot and dodge these sneaky schemes!

Where there’s money and markets, scammers thrive. Learn to spot and avoid scams, especially as scammers exploit the Internet to reach a wider audience. Stay vigilant against stock fraud and be aware of common investor scams.

According to data from the FTC, consumers reported losing nearly $8.8 billion to scams in 2022, marking a 30% increase over the previous year. Many of these losses stemmed from investment scams, which showed a troubling upswing.⁹

1. Cryptocurrency Scams

With the rise of cryptocurrencies like Bitcoin, Ethereum, and others, there has been an increase in scams related to these digital assets. Fraudsters often create fake ICOs (Initial Coin Offerings) or promote pump-and-dump schemes to lure investors into putting their money into worthless or non-existent cryptocurrencies.¹

Real-World Example

A recent example of a cryptocurrency scam is the BitConnect scam, where investors were promised up to 40% monthly returns.

The BitConnect scam gained notoriety in 2018 when the company suddenly shut down its operations, leaving investors with no way to recoup their investments. It was later discovered that the BitConnect platform didn’t have any real trading and instead used newly invested money to pay off existing investors, a classic Ponzi Scheme.

Moreover, the founders behind the scam had also used a network of YouTube influencers to promote their platform and lure unsuspecting investors into it.

As a result of this scheme, thousands of investors were left with tens of millions of dollars in losses. This is a painful reminder about how devastating stock fraud can be and should serve as a warning for all investors looking to get involved in cryptocurrency investments.

2. NFT Heists

Non-fungible tokens (NFTs) are digital assets on a blockchain representing ownership of digital items like artwork, music, or virtual real estate. As with any other asset, NFTs can be subject to theft or fraud. Investors should be aware of the risks involved in NFTs and ensure they take adequate measures to protect their holdings.²

Real-World Example

One of the most famous NFT heists happened in August 2020 when a hacker managed to steal $30 million worth of cryptocurrency from an Ethereum-based game called Axie Infinity. The hacker used a type of transaction known as a “reentrancy attack” to steal funds from wallets deposited into the game. This attack allowed them to take advantage of a bug in the game’s code, which allowed them to withdraw more tokens than they had originally deposited.

As a result, the hacker could walk away with over $30 million worth of Ethereum tokens. All of this shows that investing in any digital asset comes with risks, and investors need to be aware of these risks before jumping into any new investment.

3. Cryptojacking

Cryptojacking is a cyber-attack where malicious actors hijack other computers’ computing power to mine cryptocurrency for themselves. Cryptojackers often use malicious software or malware to access an unsuspecting user’s computer and use its processing power for their gain without the user’s knowledge or consent.

Cryptojacking can mine any cryptocurrency, but it is most commonly used for Bitcoin or Ethereum.

Real-World Example

One example of a real crypto jacking scam occurred in 2017 when malicious actors used malware to hijack the laptops and phones of unsuspecting users and use their computing power to mine for Bitcoin. The scammers targeted users through malicious advertising campaigns on YouTube, with ads that tricked users into clicking on them and downloading the malware.

Once installed, the malware began draining resources from the device and using them to mine for cryptocurrency. In some cases, this activity was so intense that it caused serious performance problems on the affected devices. Fortunately, the scam was eventually uncovered and stopped before too much damage was done.

To protect against cryptojacking, users should install up-to-date anti-virus software and regularly scan their computers for malicious code. Additionally, users should practice good security habits by not clicking on suspicious links or downloading unknown files from untrusted sources. By following these security measures, users can safeguard their devices and data from cryptojacking attacks.

4. Ponzi Schemes

These are classic scams where the returns promised to older investors are paid from the new investors’ contributions. The scheme collapses when there aren’t enough new investors or too many investors ask to cash out. An example in recent years is the case of Bernie Madoff, Jordan Belfort, or Sam Bankman-Fried. ²

Real-World Example

Sam Bankman-Fried is a crypto tycoon and the founder of the FTX exchange. In 2020, he was accused of running a Ponzi scheme through his company, Alameda Research. The scheme promised investors high investment returns, but the money came from other investors’ contributions.

5. Binary Options Fraud

This involves a scammer posing as a broker or binary options platform and manipulating the software so that the trader loses money. These platforms often refuse to credit the account or reimburse funds.³

Real-World Example

In 2017, the U.S. Securities and Exchange Commission (SEC) charged a group of binary options traders with operating an illegal scheme that had defrauded more than 1,000 investors. The perpetrators tricked unwitting victims into investing their money in fake trading platforms. Then, they used deceptive tactics to get them to invest even more money, leading to significant losses for many individuals. The companies involved were called  Binarybook, BigOption, and Option Rally.¹⁰

The SEC also issued a warning about binary options trading in 2019, stating that many binary options companies engage in fraudulent practices. The SEC warned people to be aware of false promises from companies offering high returns with little or no risk and those who cold-call potential investors.

6. Forex Scams

Foreign exchange market scams have been on the rise in recent years. They typically involve high-pressure sales tactics, unrealistic promises of high returns, and unregistered brokers.⁴

Real-World Example

One example of a forex scam involves a company that offers to manage customers’ investments in the foreign exchange market. The company promises high returns without risk but often does not provide proof or evidence of its claims. Furthermore, the company may be unregistered and operating illegally without proper regulation. Ultimately, this can lead to serious losses for those investing their money in these companies.

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7. Social Media Scams

Social media scams have become increasingly popular in recent years due to their ability to reach many people quickly and easily. These types of scams are typically perpetrated through accounts on social media networks, such as Facebook, Instagram, or Twitter.

Real-World Example

Ismail Elmas, better known as Jay Mazini on Instagram, was a social media influencer who built a following of over 1 million people by posting videos of himself generously giving money away. He used his platform to perpetrate an investment scam.

Elmas offered to buy Bitcoin from his followers at prices above market value, claiming traditional exchange platforms were limiting how much he could purchase. His victims would send Bitcoin to his digital wallet, expecting payment through wire transfer. However, the funds never arrived.

In total, he defrauded victims out of approximately $2.5 million worth of Bitcoin before his activities caught the attention of authorities. In March 2021, Elmas was arrested and charged with wire fraud. This case is a prime example of how scammers can misuse their influence on social media to defraud unsuspecting followers.¹⁴

8. Advance Fee Fraud

In this scam, investors are asked to pay a fee upfront to participate in investment opportunities that promise high returns. After paying the fee, the investor never hears from the scammer again.⁵

Real-World Example

In the case of the Canadian Lottery scam, victims received a letter informing them that they had won the Canadian lottery. Even though they never entered the lottery, the letter seemed genuine, with an official-looking check covering the taxes and fees associated with claiming the prize.

However, the catch was that the “winners” were instructed to deposit the check into their bank account and then wire the money to cover the supposed taxes and fees. Once the money was wired, the victims discovered that the check they had received was fake, and any money sent was lost.

In 2018, a significant operation of this kind was brought down by U.S. authorities. Over a dozen individuals across the U.S. were charged for their roles in the scam, which targeted mostly elderly Americans and caused tens of millions of dollars in losses.¹¹

9. Pump and Dump Scams

These scams involve artificially inflating the price of a less popular stock through false and misleading positive statements to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their overvalued shares, the price falls, and investors lose their money.⁶

Real-World Example

One example of a pump and dump scheme in the last five years is the case involving businessman Maksim Zaslavskiy.¹²

In 2017, Zaslavskiy launched two Initial Coin Offerings (ICOs): REcoin Group Foundation and DRC World (also known as Diamond Reserve Club). These ICOs claimed to be backed by real estate and diamonds. However, these claims were false; no real estate or diamonds backed these coins.

Zaslavskiy used aggressive marketing techniques and fraudulent claims to pump up the value of the cryptocurrencies, raising over $300,000 from investors. After artificially inflating the value of these assets, Zaslavskiy sold off his holdings, causing the value of the coins to plummet and leading to significant losses for investors.

In 2019, Zaslavskiy pled guilty to conspiracy to commit securities fraud. This case was notable as it was one of the first times securities laws have been applied to cryptocurrencies in the United States.

Video: Pump & Dump Newsletter Scams

10. High-Yield Investment Programs (HYIP)

Unlicensed individuals typically run these unregistered investments, which are often frauds. The hallmark of a HYIP scam is the promise of incredible returns at little or no risk to the investor.⁷

Real-World Example

In 2018, a California man, Sean Grusd, was charged with running a scam that involved a $30 million high-yield investment program. The defendant promised his investors that he would invest their money in cryptocurrencies and predicted up to 500% returns. In reality, the defendant simply used the investments to pay himself lavish commissions and line his own pockets.¹³

11. Offshore Scams

Offshore scams often involve offshore investments, such as investing in a foreign-based company. These investments are attractive to investors because they offer the potential for high returns with little risk. However, they can be extremely risky, and losses are not easily recovered.

Scammers operating in one country will set up scams in another, often targeting wealthy individuals. They promise high returns and tax benefits if the victim moves their money abroad.⁸

Real-World Example

In 2019, a California man was charged with running an offshore scam worth $11 million. He promised investors high returns in investments in foreign companies such as banks and real estate. In reality, the defendant simply used the investments to pay himself lavish commissions and line his own pockets.

Beware of scams involving sending money to another country or investing in an offshore company. Research any investment thoroughly before making a decision.

It probably is if an investment opportunity sounds too good to be true. Always do your research and consult with a trusted financial advisor before making any investment.

Liberated Stock Trader was founded for the single reason to empower people to invest their own money through education, so they can avoid scams and frauds.

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