Signs You’re Entering into a Scam (Pyramid Scheme/Fraud)

Posted in General FAQ'S on November 30, 2016

As long as money has existed, criminals have found ways of tricking people out of theirs. A scam is any type of operation meant to make money by cheating or defrauding others. One of the most notorious is the Pyramid scheme, often called a “Ponzi” scheme after Charles Ponzi, who in the 1920s created one of the largest such scams in history.

Pyramid schemes are named thusly because it starts with one person or a small group of people at the top who influence others to invest in the scam. Those individuals’ participation is typically contingent on recruiting other investors. One person recruits two people and those two people each recruit two more, and so on. The operator of the scheme will take the latest investments from the newest participants to pay off the first investors and keep up appearances. Before long, the operator typically takes the money and disappears, leaving hapless investors without their money.

Keep the following red flags in mind to protect yourself and your financial assets:

• Promise of high returns with little risk. The old adage is true more often than not: “If it sounds too good to be true, it probably is.” Be wary if you are offered an investment opportunity that promises a very high return and very little risk. Every legitimate investment carries a measure of risk.
• Consistent returns. Investments fluctuate over time, and when you invest in a legitimate opportunity, your returns will vary. You may see a 10% return in one period and 50% in the next. If the returns on your investment are consistent, it probably indicates they’re staged in an effort to keep you invested.
• Unregistered investments. Every investment must be registered with the Securities and Exchange Commission (SEC) or state regulatory bodies. If a company cannot provide you with registration information, it is most likely a scam.
• Overly complex strategies. If you cannot gain a straightforward explanation of how an investment works, don’t invest in it. You should be able to fully understand how your investment will work, and the investment company should be able to provide you with complete information.
• Paperwork issues. You should be able to receive any information about your investment in writing. Do not accept any excuses as to why you cannot have paper copies of your statements or anything else.
• Difficulty receiving payouts. Some scams encourage investors to “rollover” investments by promising even higher returns. This is usually just to keep the money within the scam and avoid paying out on investments as long as possible.
• Your income is based more on recruiting rather than selling products. The trademark of the pyramid scheme is that you must purchase a great deal of inventory in order to make a return, but your profits are based more on how many people you recruit to join you.
• Large up-front costs. Be very wary of any money-making opportunity that requires a large initial investment or requires purchases.
• Unprofessional details. A legitimate investment organization will take the time to ensure paperwork and correspondence is free of grammatical and spelling errors.
• Suspicious emails. Most legitimate companies purchase their own email domain names. If you notice emails from a company but the domain name is a generic one such as Gmail, Yahoo, Hotmail, or AOL, it is more than likely a scammer.
• One of the tactics scammers use is high-pressure encouragement. A scammer will urge targets to act quickly and invest as much as possible or risk missing out on an opportunity. Legitimate investment organizations will never pressure you to act straightaway – they want you to take your time and make an educated decision, as your investment will affect them, too.

Despite advances in modern technology, these schemes are still around today. By now, most adults have encountered at least one email from foreign royalty, claiming he or she is the long-lost heir to a fortune and need only provide bank account information to receive their inheritance. This is just one example of the methods modern criminals use to defraud victims. It’s vital to stay vigilant and be skeptical of any proposition that sounds too good to be true.

For more detailed advice or legal counsel, contact our Riverside embezzlement attorney.