Recognizing investment scams

In short

A friend of mine lost a good part of his savings to a man who called him "partner" after one phone call. You have probably heard a pitch like that, or you may hear one soon. Nobody who falls for a scam is foolish. They are often hopeful, busy, and kind. Before you send money to anyone, check that the person and the firm are registered with a regulator you can look up yourself. Never let a caller or a message hurry you, because a real offer can wait a week. Be wary of any promise of high returns with no risk, since a real investment cannot promise both. Be careful if a stranger asks you to pay in gift cards, crypto, or wire transfers, because that money is hard to get back. If you have already sent money, act today, and tell someone you trust.

The whole of it

What it is

I once watched a retired schoolteacher shake her head at a letter she had almost answered. It promised to double her savings in ninety days, and it came with a photo of a smiling man on a boat. She told me later that the boat almost did it. Wanting a better life is no crime.

An investment scam is a plan built to take your money by lying about what it will do. The seller may claim to run a fund, a coin, a land deal, or a trading program. The product may not exist at all. Or it may exist in a form that cannot deliver what was promised. Some are old fashioned Ponzi schemes, where early investors are paid with money from later ones, until the money runs out. Others are new, like fake trading apps or fake romance that turns into talk of a "sure thing."

The scammer does not need you to be greedy. The scammer needs you to trust. That is the whole trick. So the lesson here is not to trust less in life. It is to check more before you pay.

How it works

If you have ever felt a small pang of worry after saying yes, you already know how it works. The scammer first earns your comfort. It might be a friendly text, a shared hobby, or a warm voice that remembers your grandchildren's names. Then comes a chance that seems to fit your hopes. Then comes a clock. The offer closes Friday. Only a few spots remain. Your friend already got in.

Pressure is the tell. A good deal survives a night of sleep. A bad one falls apart when you ask questions, so the seller makes sure you have no time to ask.

Many scams also start small. You are shown fake gains on a screen and invited to add more. When you try to take money out, a fee appears, or a tax, or a "release charge." You pay it. Another comes. Each payment feels like the last step. It never is.

Payment method matters too. Scammers like wire transfers, gift cards, and crypto because that money is hard to pull back. A real firm will take a check or a bank transfer to a named account in its own name. Be careful when a stranger asks for anything else.

The numbers, and where to find yours

You do not need many numbers here, but a few are worth knowing. The best one is the registration status of the person and the firm. In the United States you can look up a broker or adviser for free. FINRA BrokerCheck shows a broker's record, including past complaints. The SEC's Investment Adviser Public Disclosure site shows advisers. Your state securities regulator can tell you if a seller is licensed in your state, and the North American Securities Administrators Association can point you to yours.

The next number is the promised return. Real investments carry risk, and higher hoped for gains come with a higher chance of loss. If someone guarantees a return, that is a warning, and you can say so out loud. The SEC's Investor.gov site explains this in plain words.

There are also yearly figures that matter if you ever report a loss and claim it on your taxes. The limit on deducting a capital loss against ordinary income is the current figure, which the official source publishes each year. Whether a scam loss counts as a theft loss you can deduct depends on the tax rules in force for the year of the loss, and those rules have been amended by Congress, including in the Tax Cuts and Jobs Act of 2017. Please check the current rule for your year at IRS.gov or with a tax professional. Your own numbers are the amount you sent, the dates, and how you paid. Write those down now.

A worked example

A man named Walter Pruitt, age 63, got a message from a woman who said she traded currencies. They chatted for three weeks. She never asked for money. She just shared her wins. Walter liked her, and he liked her charts.

One evening she offered to show him how to start. He put in 2,000 dollars. The app showed his balance climb to 2,600 dollars in a week. That looked like a 30 percent gain, because 600 divided by 2,000 is 0.30. He felt proud and a little lucky.

So he added 10,000 dollars from his savings. The screen now showed 13,000 dollars. When he asked to pull out 5,000 dollars, the site said he owed a 15 percent fee first. Fifteen percent of 5,000 dollars is 750 dollars. He paid it. Then it asked for a tax of 1,200 dollars.

Here Walter stopped. He called his daughter, who sat him down and did the math with him. He had sent 2,000 plus 10,000 plus 750, which is 12,750 dollars. Every dollar of it was gone, and the gains were only numbers on a screen. Nobody had ever bought a thing on his behalf.

He was lucky in one way. He did not send the 1,200 dollars. He reported it that day to the FTC at ReportFraud.ftc.gov and to the FBI's Internet Crime Complaint Center at ic3.gov. He also called his bank the same hour. Walter told me the hardest part was not the money. It was saying it out loud. Once he did, he felt lighter.

Where it goes wrong

You might think you would spot a scam, and I hope you would. But smart people get caught, and the reason is simple. Scammers study what makes people feel safe. They use real names, real looking websites, and even copied logos of real firms. Some pretend to be a regulator or a government office and say your money is "frozen" until you pay.

Shame is the other trap. People stay quiet, and the quiet lets the scam grow. If someone you love is in one, do not scold them. Ask gentle questions. Say, "Would you mind if we looked this up together?" A person who feels respected will often look. A person who feels judged will often hide.

One more wrong turn is the recovery scam. After a loss, a stranger may call and offer to get your money back for an upfront fee. That is often the same crew, back for a second bite. Real help does not ask you to pay first. Hang up, and use the reporting sites named above.

Questions to answer before you leave this page

Have you looked up the person and the firm on BrokerCheck or the SEC adviser site, and did the names match what you were told? Does the offer promise a return with no risk, and are you willing to say that out loud to a friend? Are you being asked to decide fast, and what would happen if you waited a week? Would the seller take a plain bank transfer to a named account, or only gift cards, crypto, or wires? Have you told one trusted person the whole story, not just the good parts? And if you have already sent money, have you written down the amount, the dates, and how you paid, and called your bank today?