As an investor you should be aware of the various types of investment fraud.  Some of the types of fraud include:

  1. Affinity fraud – is whereby a fraudster preys upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly, or professional groups. The fraudsters are members or pretend to be members of the group.  These scams involve exploitation of the trust and friendship that exist in groups of people who have something in common.
  2. Ponzi Scheme – is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. Ponzi schemes require a constant flow of new money to survive.  The Ponzi schemes collapse when there are no new investors or when large numbers of existing investors cash out.
  3. Pyramid Scheme – A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.
  4. Advance Fee Fraud – This occurs when investors are persuaded to pay money up front to take advantage of an offer promising significantly more in return. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later. Once the payment is made, the fraudster either invents a series of further fees for the victim or simply disappears.
  5. Internet and Social Media Fraud – While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Social media, and the Internet generally, offer several attributes criminals may find attractive. Social media lets fraudsters contact many different people at a relatively low cost. It is also easy to create a site, account, email, direct message, or web page that looks and feels Investors need to be cautious when using social media when considering an investment.