WHY PEOPLE FALL FOR FINANCIAL SCAMS?
August 29, 2019
HOW TO SPOT A FINANCIAL SCAM?
August 30, 2019COMMON TYPES OF INVESTMENT SCAMS
1) ADVANCE FEE SCAMS
In an advance fee scams, the victims are persuaded to pay money to take advantage of an offer promising significantly more in return. It could a great gift or loan on easy terms without security or loan for those who have poor CIBIL scores or partnership in a great firm at “entry cost”. Once the initial upfront payment is made, the scamster will ask for more amount as fees, commission and so on.If you pay, he will disappear. If you do not make further pay, he will disappear, for sure.
2) PRE-PUBLIC OFFER SCAM
In this scam, the victim is told about an impending public issue of a great company .“if you buy shares now, you will be get it at face value , And once public issue is declared it will be available at 5-10 times the face value!”. They may or may not come out with a public issue. If they come out with a public issue, these shares will get traded much below its face value.This is a “perfect scam”. You have willingly participated to become share holder of this Company. Almost nothing can be proved in court.
3) FOREX SCAM
The foreign exchange (forex) market is considered to be the largest and most liquid financial market in the world. The investors buy and sell currencies with the aim of making money on changes in the exchanges rates. Forex Advt, is placed to promote easy access to forex market thoroughly online or office courses. Many of these advts come in online news portals of well knownchannels.I have seen such advts appearing in www.moneycontrol.com.You need to pay upfront to join the course. And, you need to fork out commission while dealing through the brokers who operate in Forex Market.Since it is difficult to beat high standards of Forex professionals, you end up losing money most often. Many such firms are operated out of small one room offices.
4) Offshore investing scams
In this scam, the victims are persuaded to invest in a foreign land, it could be in business, property or any other. Great property in the middle of London at ridiculous prices! Or Invest in Dubai Apartment through four easy instalments! Offer is too good to be true.The scammers take money and disappear. By the way, where will you file cases? Which jurisdiction? Sitting in India and filing a case in a foreign location ? Think before you part with your money.
5) PONZI OR PYRAMID SCHEME [MLM ] SCAM
These schemes recruit people through Advts, Emailand directly through “contacts”. They promise everything from making big money,” work from home” to turning RS1000/- in to Rs.10,00,000/- in just six months or you may be given the chance to join a special group of investors who are going to get rich on new” great investment idea”. Investors who get into the schemes early, may receive high returns fairly soon from what they think are “interest or profit” cheques. Each person in expected to add few dozen people and these few dozen people are expected to add few dozen more people as promoters. Few dozens of these promoters are expected to add one dozen each promoter. For each addition to the pyramid, the early entrant keeps getting a share. At some point of time, the money dries up or people in the chains disappear, leaving the rest. Since the entire chain of people are involved, it is difficult to pinpoint to an individual as the real culprit and hence, almost no one gets caught or punished. MLM (Multi-Level Marketing) scam is a variant of the scams
6) PUMP AND DUMP OR “HOT TIP” SHARES
This scam is generally operated during the bull period of stock market. Through SMS and direct calls you are advised to buy shares of a particular company. Before the scam, the operators hold virtually all the shares bought from stock exchange at prices as low as Rs.0.25 per share .SMS or direct “tip” will tell you that it will soon reach 30% higher within a week or so. When it touches higher level, you are tempted to buy on further ” tips”. The operators keep on rigging prices in the stock market. At some point of time, the shares would have touched astronomical values .Example;- a shares of Re.1/- face value will be getting exchanged at Rs.130/- , similar to ICICI Bank or Tata’s. The buyer and seller are the same group of people at early stages. At later stage, the buyers back out and you are left holding huge amount of shares which has no buyers are available even at 1/100th of price.So, you have acquired shares of Companies which do not value equal to toilet tissue paper! Since, the whole transaction is 100% legal, nothing can be proved in court! If you go to Police, they may tell you two things.One, you have willingly bought these shares and no one showed you a knife. Second,the call came from somewhere in Gujrat, outside jurisdiction of even Police chief!
[Strange, but true, I have observed that many of these hot tip shares come from Rajkot, Ahmedabad
and Indore.]
7) PRIVATE FINANCE COMPANY SCAM
Generally, this scam is targeted at retired people soon after retirement.Afterretirement,People realize that bank deposits fetch only around 8% and there are hardly any avenues which are known to give returns higher than 8%.Here comes, the friendly and very helpful Advisor who promises return of 15-20% PA. There is only one “catch”. The offer of 15-20% interest on deposits that they may give, only 10% is officially given as interest and rest of the money is given as” incentives” or commission to circumvent the laws. At times “ post-dated cheques” are also given on the day of deposit to gain confidence of investors. The money collected is often invested into property development. An advance is paid for land under housing plot development. As each housing plot gets sold, the scamster makes money and he keeps paying high interest rates. At some point of time, it becomes difficult to sell plots due to oversupply or economy’s down turn. At this point, PDC’s start bouncing. One can file a criminal case for cheque bouncing. But the police and judiciary are so difficult to deal with, most people give up the money !
8) GOLD SCHEME SCAMS
In this scam, gold ornaments are offered an EMI basis. You are persuaded to deposits only 25% of the gold value and they issue a certificate for100% value of gold at current prices. [Or some variant of this].You are expected to keep giving monthly instalments till full gold prices are given. The money is utilised by the scamster for trading in commodities market and when the commodity market crashes he disappears. In some cases, they may return the money after adjusting making charges and admin charges!.Net amount would be less!
9) INVESTMENT SEMINARS
The scamsters invite hundreds of people to a seminar where he/she presents an unbeatable investment opportunity. Star hotel and free lunch are offered. You are told to bring cheque book to book the great offer available just on that day. As the Chief person is leaving town ,after two days to another foreign location, you are advised to take the decision fast. Within 2 days, the money is gone, so is the person!.
10) HOUSING PLOT ON EMI SCAM
In this scam, the scamster offers housing plots in a great upcoming colony or township, named as “officers defence colony “or “doctors colony” or colony “Happy valley”or such exotic name. Layout plan is shown which includes club house, proposed temple [if the target are Christians, proposed church!], proposed bus station, proposed English medium schools etc. To book the housing plot, one has to pay only 10-15% of the site cost, rest is in easy instalments!. Wonderful, is it not? Every 60-90 days, the instalment cheques keep getting cashed. May be 90%
amount would be collected.10% is kept at the time of registration. After paying most of the amount and waiting for few years, you would realise that they do not have permission from Govt. Then there are series of stories:
-Office premises changed. [Now, it is located at a far flung area]
-New Management or Committee will take over .
-Things will come through after elections etc. Each time, a new story.
If you go to Consumer court, it may take 10-15 years to get a verdict. Most likely , the verdict will ask them to return back amount with SBI SB account interest[3.6%].If you work out legal fees and other charges, you would have made 60% loss minimum.! That only if you are lucky to get back any amount.!
11) DAY TRADING IN STOCKS SCAM
In this scam, you are promised Rs 40,000 plus income per day and wonderful life by becoming a day trader.They promise Mercedes car within few months after becoming a day trader. All that you have to do is to join a “Day Trading training course”. The fancy advertisement is linked to well known sites like moneycontrol or similar. Believe me, you will not able to buy even a cycle, forget Mercedes!
12) FRANCHISEE SCAM
In this scam , you are offered franchisee of a great Company with 20-50 year old history. You are expected to invest Rs 5-10 lacs as the franchisee holder. They will offer 40-50% return on your investment .Further, if you are willing to put up a Board of the franchisee and bring in more franchisees, additional amounts are offered. In short, the company must earn 50-70% profits on invested money to sustain itself. There is no such profit is possible, any experienced guy will tell you.
