How to Identify an Investment Scam

Regardless where you live, investment schemes that are blatantly fraudulent attract hundreds, even thousands of people all over the world every year.

A company that offers impossibly high returns often finds many takers. In fact, some investment fraudsters advertise in well-known publications or other media channels to appear legitimate.

While investment fraud can look perfectly legitimate in all the ordinary ways, how can you protect yourself from investment fraud, and what are the warning signs that can alert you before you lose your money?

Here’s what you should look out for:

1. Is the entity regulated by the local authority?


You are unlikely to be cheated by a company that is supervised by regulatory agencies. For instance, Monetary Authority of Singapore (MAS) imposes a strict set of guidelines for the firms that it regulates. Financial companies that are required to adhere to the rules imposed by MAS must disclose important details about the investment opportunity that they are offering.

These firms also need to submit a variety of reports on a regular basis to MAS. An investment scheme promoted by one of these companies will point out the risks that you are undertaking when you deal with them.

But all financial entities in Singapore are not regulated by MAS. In fact, the regulator publishes an Investor Alert List that provides the names, addresses, phone numbers, and websites of those entities that are not supervised by them.

This list is not exhaustive. It only contains those firms that Singaporeans may wrongly perceive to be regulated by MAS. Of course, many of these firms will be carrying out perfectly legitimate operations. MAS is merely pointing out that it does not supervise them.

2. Companies that pay unbelievably high returns

silhouette of a man in window

James Phang Wah, the owner of the Sunshine Empire, promised his investors returns of up to 10% a month. The scheme, which he promoted, ran for three years from 2006 to 2009 and it managed to collect S$180 million from gullible individuals.

How could a fraud be perpetrated for that length of time? It had all the hallmarks of a classic Ponzi scheme. The promoter paid early investors with the funds collected from those who entered the program later. The word of mouth publicity provided by the people who actually got their money back along with interest played a large role in the success of the Sunshine Empire.

But the scam could not go on for ever. Of the total collections of S$180 million, a sum of S$121 million was repaid to investors. When the authorities closed the company’s operations down, a further S$21 million was recovered.

James Phang Wah got nine years in jail for fraud. But that probably did not provide any solace to the people who lost tens of thousands of dollars of their hard earned money.

3. A simple Google search may help 

grey samsung laptop turned on beside black smartphone

The “Iraqi Dinar Scam” ran for a full seven years in the US, till its perpetrator, John Scott Clark, was arrested. He had provided written guarantees to investors stating that they could earn annual returns exceeding 3,000%.

A US$1,000 investment would yield US$125,000 in 90 days. Those who put up US$20,000 were promised a US$3 million payout.

How did the scam work? Investors were told that their money would be deployed in “top secret” Iraqi currency and oil contracts. In seven years, the fraudsters collected US$1.7 million.

When the fraud came to light, the US Securities and Exchange Commission (SEC), the federal body tasked with protecting the interests of investors, made a shocking revelation. It disclosed that many of the people who were asked to participate in the scheme had been victims of an earlier Ponzi scheme floated by the same person.

Those who were cheated by the Iraqi Dinar Scam failed to carry out basic due diligence. An internet search would have thrown up John Scott Clark’s name in the SEC’s enforcement database.

4. The fraudulent phone call

man having a phone call in front of a laptop

Many people are cheated out of their money by the promise of high returns on their investment. The initial approach is often made by an unsolicited phone call.

How can you tell if the caller is trying to swindle you? Here are a few pointers.

  • At times the caller’s voice may be unclear and you may not be able to hear every word that is spoken during the call.
  • It is highly likely that the caller will be very persistent. You will be strongly discouraged from putting the phone down.
  • A common theme that runs through many of these calls is the promise of high returns on your investments. You may be told that if you delay the decision, you could miss out on an extremely lucrative offer.
  • The call will usually be from a company that you have never heard of before. A search on the internet will provide very few details. Sophisticated fraudsters may develop websites that contain fake information.
  • If you seem to be losing interest, you may be asked to speak to the caller’s “supervisor.”

At times, the caller could ask you to contribute to a charity or some noble cause. Carry out your own check before you decide to pay.

5. A promise of guaranteed returns 


A con artist will play on the greed of investors by promising high returns that are guaranteed. This should raise a red flag immediately. With bank term deposits providing barely 2% or 3% per year, how is it possible to get guaranteed returns of 10% per month?

The most important rule that you should keep in mind is to remember that you should not invest in a financial product that you don’t understand. Fraudsters will use sophisticated terminology and big words to hide the fact that they are trying to cheat you.

Finally, if you think that an investment proposal sounds too good to be true, it probably is. Tell the sales representative who is pushing you to finalise the transaction that you want to take a second opinion from a friend who is familiar with financial matters. If you are strongly dissuaded from doing this, you need to exercise a great deal of caution before investing in the scheme being offered to you.

Click here to read the original article.

This is a guest post by ZUU Online, an Asian-based Finance Education Portal aimed at helping individuals to improve their knowledge on personal finance and money, through educational articles on business, investments, property and insurance.

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