Investment Scams in the Internet are not new. The cheating
techniques we see in most of today's life originated long ago. The investment
scams are prevailed in the following areas.
- Telemarketing
- Direct
mail or
- Door-to-door
selling schemes.
Rather than these old tricks, another dimension of trouble
brought after the emergence of the Internet. For instance, by creating illusion
like a reputable company, a fancy Web site can provide links to legitimate
sites.
Given below are the different types of investment scams that you must look
after.
Pump and Dump Method
Pump and Dump is a highly illegal practice where informed
people of a small group buy a stock before they recommend it to thousands of
investors. This leads to a quick spike in stock price followed by an equally
fast downfall.
The stock was early sell off by the perpetrators who bought that
stock when the price peaks at a huge profit. Most pump and dump schemes
recommend companies that are over-the-counter bulletin board (OTCBB) and
have a small float.
Small companies for which there is little or no information
about are more volatile and are easier to manipulate a stock.
There is also a
variation of this scam called the "short and distort." Rather than
spreading positive news, fraudsters use a smear campaign and attempt to drive
the stock price down. Short selling then makes profit.
Prime Bank
You should be very wary when you hear this term--fraudsters
looking to lend legitimacy to their cause often use it. Prime bank programs
often claim investors' funds will be used to purchase and trade "prime
bank" financial instruments for huge gains.
Unfortunately, these
"prime bank" instruments often never exist and people lose all of
their money.
In most of the world, this usually describes the top 50
banks. Prime banks trade high quality and low risk instruments such as world
paper, International Monetary Fund bonds, and Federal Reserve notes.
Ponzi Scheme
This is a type of pyramid scheme; where in order to provide
a return to previous investors, money from new investors is used. The drawback
of this scheme arises when money owed to previous investors is above the money
that can be raised from new ones. Ponzi schemes always collapse eventually.
Off Shore Investing
In order to help trap the U.S and Canadian investors, these
are becoming popular scams. For fraudsters of the scam, conflicting time zones,
differing currencies, and the high costs of international telephone calls made
it difficult to take advantage of North American residents.
These barriers are eroded by the Internet. When considering
an investment opportunity initiating in another country, be all the more
cautious. Investing and prosecuting of foreign criminals is extremely difficult
for your local law enforcement agencies.
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