How To Avoid Investment Fraud

As the demand for investment opportunities continuously rise, you can't avoid the possibility that you will come across a few investment fraud. Although investment fraud have been around for quite some time now, it is becoming even harder to identify them, now that more and more scammers have become aware of the power of the internet. If you are strongly considering making an investment in the internet industry, here are a few tips that can help you avoid investment fraud.

Avoid get rich quick schemes like the plague - since get rich quick schemes have already cost thousands of people millions of dollars in lost investments, just in the US alone, don't allow yourself to be part of that statistic. If a business proposal seems to be too good to be true, be sure to avoid it.

Do extensive research on your chosen investment opportunity - try to get a better understanding of the industry that you are thinking of getting into. If you can afford it, take a crash course that will give you a better insight into the endeavour that you are about take on. Not only will this prepare you better for the challenges ahead, but it can also help you develop patience and a gut instinct for business deals.

If you are not quite sure about a certain business opportunity, start tracing it back to its paper trail. Look for legitimate records that will prove that your chosen business endeavour isn't just a fly by night operation.

Investing in a fairly new industry can turn out to be quite fulfilling, as long as you take the time to assess what the online industry has in store for you. If you want to know more on how you can make a lot of money legitimately without fear that you'll be scammed, be sure to follow the tips that this short article has taught you.

Investment Fraud

Also called 'brokerage fraud,' investment fraud technically occurs when an advisor, a brokerage firm, or a stockbroker advises a client against the guidelines set by the Securities and Exchange Commission. Do not fall victim to unscrupulous brokers; learn the tricks used by investment fraudsters and how you can avoid them.

Sadly, most investment fraudsters target older people. Many senior citizens have the characteristics that fraudsters are looking for - sizeable savings accounts and the tendency to trust more easily. If you belong to this demographic, be extra careful. Invest your money directly with banks, and avoid shady Internet deals unless you are adept at online transactions.

Never sign anything without the presence of a lawyer you trust, especially if you are not very familiar with legalese. If you prefer not to hire a lawyer, then do your homework beforehand - reading and understanding contracts, terms of agreements, and policies that come attached with any investment offers could prove to be a wise move. Most fraudulent companies use the fine print of their contracts and agreements to cheat you.

The most common schemes used by investment fraudsters are 'Prime Bank Instruments.' They use the names of the world's most prestigious banks in efforts to make you invest your money. They pretend to pool your money with the money of other investors. At first they may reel you in by giving you good returns, so that you invest more and tell your friends about it. In reality, the 'returns' they give you are money from new victims. After one or two cycles, they disappear together with your money.

If you think you have found a company worth investing in, be cautious. Look further into the company's background and financial situation, at the very least. Leave no stone unturned - do everything you can to make sure that you are dealing with a legitimate company so you will not be robbed of your hard-earned money.

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5 Sure Fire Ways to Avoid Investment Fraud

For anyone that has ever looked for investments on the internet, you have probably come across HYIP oriented investments. HYIP is an abbreviation for High Yield Investment Program, which refers to a type of investment where the investor has the potential to generate a substantial return on their investment. This sounds great, except that the overwhelming majority - and I do mean the overwhelming majority - of these supposed investment funds are frauds. This article will tell you the main things can alert you to a fraud before you end up putting your money in one.

1. They Guarantee High Returns

No credible fund manager would ever, ever promise a guaranteed return on their investment. Why? Well, simply because genuine investments don't operate like that. You may have months and years of extremely impressive returns, only to be followed by periods of unimpressive or negative returns. Historical expectations are fine, but they can't predict the future. If you are looking into an investment that promises a guaranteed rate of return (and its not some kind of low yield fixed income investment), then you should stay away. This is definitely one of the biggest fraud signs to look out for.

2. They Promise Against Loses

This is somewhat related to the first point, but it pertains to the investment's risk level. One day, out of complete curiosity, I went on to live support with one of the large HYIP sites. When I asked about the security of my investment, I was told that it was completely safe and protected. When I enquired further, the person that I was speaking with couldn't explain how this was possible, aside from stating that it would be managed by professionals who have been trading for many years, and that it was diversified. None of this is an assurance of safety, and is simply a façade for the uninformed. The last straw came when they mentioned to me that it was also guaranteed by some other secretive fund full of cash. Even if there was such a source of capital, how could it be sufficient to pay back the principal for all of their investors if they collapsed? Frankly, it couldn't - and realistically, it doesn't need to, since it doesn't really exist in the first place. Any reputable money manager is going to be candid with you about the risks of the investment. If they try to claim that they have no risk, or attempt to obfuscate their level of risk, it is best to give them a miss.

3. They Take Direct Control Of Your Money

Anyone familiar with the Madoff fiasco should know that one of the first ways to spot a fraud or ponzi scheme is if you are sending your checks directly to them. Scammers are usually very skilled - more skilled, in fact, than many legitimate investment funds - at setting up easy ways for you to send them your money. You can usually wire it, send a check to them, or even use paypal. Customers are often fooled by the guise of professionalism that this creates and don't notice the insidious problem: they are sending their money directory to a firm that could well be a scam, with absolutely no 3rd party oversight. Genuine investment firms house their money at an independent custodian, so the client is able to have their account in their own name, with no potential for fraud on the part of the investment firm. This is definitely more tedious in terms of paperwork for the client, but the lack of this necessary safeguard is a easy way to spot a fraudster.

4. They Aren't Sufficiently Transparent

Most of these investment scams won't allow you full access to your account. Sure, they might send you monthly statements, but that means absolutely nothing. A statement can be forged to swindle $50 Billion from many large investors, so they can definitely be very convincing. Instead, what you need is the ability to actually login to your account, allowing you to view every activity that happens in your account as it occurs. This includes making an trade, taking an trade loss or gain, and any fees charged to the account.

Finally, I would even be hesitant about trusting the ability to access this information through the investment company in question. Many of these frauds have complex software, capable of reproducing what your investments should be doing, even if your capital isn't really invested at all. As with the previous red flag, the only sure fire way to avoid an investment scam is if you are able to access your account information through a third party custodian, rather than directory through the investment firm.

5. They Aren't Able To Explain Their Market EdgeNo successful investment fund is going to give away the specific details of how they generate returns, but they should be able to offer a verbal overview of their market inefficiency. If they are unwilling to do this, or if they give some convoluted explanation, you should be suspicious. It doesn't have to be incredibly complex, but they should be able to offer you a general idea of how they are able to profit.

Finally, don't be tricked by people who claim to have gotten regular payments on Internet forums or investment review sites. Firstly, they could obviously be fake - but even more likely, as in the case of ponzi scams, they may well have gotten payments. In a ponzi scheme investors get regular payments that come from the initial investment in their account or the accounts of fellow investors. Regular distributions is no sign that it isn't a scam; in fact, returns that are too regular may well be the sign that it is a fraud, since real investments are not cash machines, and tend to go through up and down periods. That said, with this guide, you should be able to avoid any investment frauds that you encounter. Just remember that any one of these by itself isn't automatically a deal breaker. If they the red flag goes up for several of these, however, I would be very apprehensive of investing any money with that firm.

Christopher Muir is President and CEO of Invariant Capital Management, a New York-based managed Forex fund. Invariant specializes exclusively in robust, systematic trading strategies, focusing primarily on the G10 currencies.