Let’s explore the shady side of finance, where the dream of getting rich quick can quickly turn into a twisted tale of lies. This article spills the tea on some of the biggest investment scams that happened in the last few years.
Let’s also break down the nitty-gritty details of how these cons work and what happened to the masterminds when the law caught up with them.
It’s like a backstage pass to the drama-filled world of financial deception. Let’s spill it!
There has never been a time when cases of investment deception have been more numerous than they are currently. According to Carlson Law’s recent study on fraud, in 2022, Americans lost more money in investment frauds than in any other type of fraud committed against them.
The research carried out by the firm was based on data provided by the Federal Trade Commission (FTC) and the FBI regarding investment fraud in America today. The company revealed that there was a total loss of 3.82 billion dollars as a result of such fraudulent activities during last year alone, which is an increase from 1.64 billion dollars in 2021, representing an increment of 128 percent in one year.
Here are some stats of reported cryptocurrency fraud cases:
The report also stated that traditional scams like celebrity investment scams, pyramid schemes, ponzi schemes, and real estate fraud were still popular.
Advances in technology have also opened new doors for these con artists. Many of these new scams use artificial intelligence technologies such as voice cloning and deep fake videos.
I have listed down the top investment scams for you, which are still prevalent now and will be in the future too.
Through studying them, you will understand how to navigate through this harsh world of investments filled with scammers at every turn.
Pyramid Scheme/The Bernie Madoff scheme
The global pyramid is one of the most well-known frauds. Others believe that pyramids have taken more money than any other crime. Pyramid schemes are also referred to as Ponzi schemes after Charles Ponzi, who authored one of the greatest scams ever.
In the 1920s, Ponzi went away with $20 million from his customers. The Ponzi scheme was simple enough. It promised clients high returns for minimal duration, thus luring them to invest in his security exchange company.
It is how all financial pyramids work: early investors are paid by Ponzi from funds given by new ones.
This is just an example of old times.
Madoff’s investment game was somewhat like Ponzi’s, only that he did it better. He informed his investors that he was implementing a real “split-strike conversion” investment strategy.
Unfortunately, though, those huge, steady returns were a sham. The same account into which investors had made deposits was used to make payments.
That worked out pretty well for Madoff until it didn’t any more, when he was arrested in 2008. There was no new money coming in because the 2008 recession happened.
In 2009, Madoff pleaded guilty to eleven counts and forfeited $170 million worth of assets. He is serving a 150-year term sentence set to expire on 2139. He died in 2021.
Pump and dump scheme
An individual running a pump-and-dump fraud would begin by raising the price of a stock through spreading false information about the company, and then offload the over-hyped shares into the stock market once prices were high enough. The name of the scheme comes from this.
Usually, investors come across such types of scams on stock markets while browsing online messages that encourage them to buy stocks hurriedly. Frequently, these claims revolve around some ‘inside’ information. Thus, when that excitement wanes, the investors lose their money since they have nothing left if the share prices drop.
An illegal pump and dump scheme led to the imprisonment of three Canadians and a Californian for a period of 25 years and a fine of $5 million.
After making phone calls offering stocks, the group targeted American investors for purchases. They used their website: its function was to trace more than $140 million in stock sales from 70 issuers and then to harbor those stolen funds within offshore accounting systems.
Real estate scam
Real estate sales intricacies are opportunities for con artists to employ many scams. Fraudulent escrow payments, phony home listings, and promises of foreclosure relief can confuse unwary investors into losing their money.
The United States Department of Justice (DOJ) has charged a California man with manipulating foreclosure auctions. The conspirators would have public auctions where they did not bid against each other but privately bid for some buyers on cheap properties. The group is facing up to 10 years of imprisonment and a fine of $1 million.
Cryptocurrency trading/Sam Bankman-Fried
It is very difficult to resist investing in cryptocurrencies. It is a new technological innovation that has attracted many investors who are looking to make quick money. Additionally, you might have encountered people who have become wealthy because of bitcoin or watched clips on how you can invest for yourself. However, there are stories of how people lost their bitcoins to fraudsters and some got scammed on their bitcoins.
On October 3, Sam Bankman-Fried, the 31-year-old founder of FTX, went on trial in Manhattan, New York, as the former CEO of a collapsed cryptocurrency trading site who pleaded not guilty to seven counts of fraud and conspiracy.
The American government prosecutors have accused SBF of having carried out one of the biggest financial scams in crypto history. The total loss reported was about $8 billion and that’s the biggest scam in human history.
However, some previous partners, like Gary Wang, admitted their guilt and cooperated with law enforcement agencies.
Bankman-Fried is being prosecuted for fraud and money laundering in connection with his role in the collapse of FTX, a digital currency exchange worth billions.
It is alleged that since the company filed for bankruptcy, the CEO has been stealing billions of dollars belonging to customers from the reserves of the stock exchange to support political campaigns, buy properties, and engage in well known sponsorships.
Executives of Wirecard, an electronic payments company in Germany, were on trial for what the media described as the largest corporate fraud case in German history on December 8, 2022.
It will mean that former CEO Markus Braun and two other senior executives, namely Oliver Bellenhaus and Stephan von Erffa, will go to jail for many years if found guilty.
According to rumors, Marsalek is hiding in Russia. He is currently among Europe’s “most wanted” fugitives, although it is claimed he did not refrain from sending a letter in support of Braun via his attorney in Munich last July.
Wirecard fell into the focus of attention when it declared insolvency in 2020 and regulators discovered that $2.1 billion was missing from the firm’s accounts, with allegations from German regulators that this money had never existed.
Braun was apprehended while Marsalek escaped abroad, where he has been tried since 2023; these proceedings are expected to finish by mid-2024.
The investors cannot do anything but wait for the outcome of the fraud trial without any hope of getting back their investments.
Misleading investment offers– $160,000 loss
One Manitoba newspaper had advertisements from a technology company that was allegedly said to be willing to unlock investments held under RSP accounts. The investors were supposed to purchase the stocks that were being issued by this technology company and receive assurance that the share prices would go up.
Afterwards, the corporation “borrowed” some of the money from their shareholders. In addition, in order for these new officers to deal with internal business transactions, they made them officers of the company even though they were totally ignorant about how the business was being run.
As a result, investors lost 30-40% of their money and faced tax implications. At present, common shares of the corporation are worthless and will most likely never have any value.
The president of the company was sentenced to three months in jail and two years of supervision. He paid back $20,500. A second person involved got a one year prison term.
Boiler Room Scam/Michael Nascimento (2018)
Sales environments are referred to as boiler room scams because fraudsters use extremely aggressive selling techniques that create a pressure-cooker situation for salespeople. One form of investment fraud is becoming increasingly more popular and it is called boiler room scams.
Michael Nascimento was the ring leader of this activity, and he and his cohorts ran boiler room scams for just short of four years. Their victims were cold-called and then coerced into buying ‘lucrative shares’ in a company that allegedly owned land in Madeira. The victims were promised returns of between 125% and 228% on their investment.
One of the many lies given to investors about this scam was that the plan was in partnership with Barclays Bank. The investors never received these returns, but rather, their monies allowed Mr. Nascimento to live large.
This case represents the second highest level of prosecution ever initiated by FCA, thus making it a significant UK’s recent investment fraud case.
Although traditional investment frauds still dominate the sphere of financial crimes, there are emerging cases of new and innovative kinds of investment scams.
One infamous case of investment fraud that has become an international story is also in this category. This particular case combines Ponzi fraud with a cryptocurrency scam that has affected a large number of investors all over the world.
The tale began with the so-called OneCoin, which was marketed as the main rival to Bitcoin and its promises about huge returns were quite convincing and captivating. It was such an effective scam that within six months, from January to June 2016, they had invested almost €30 million in OneCoin.
In reality, OneCoin was not a legitimate crypto-currency. Moreover, it did not have any form of accountability or credibility. Furthermore, it was not yet ready for the market. The investors’ profit jumped only because they wanted to produce an artificial increase in money value.
It was also being run as a pyramid scheme, with the founder selling it to MLM members, who in turn made money by convincing others to buy.”
For more information on this case, you can read a detailed BBC article about it.