HOW TO SPOT A FINANCIAL SCAM?
COMMON TYPES OF INVESTMENT SCAMS
August 30, 2019
HOW TO DEVELOP FINANCIAL LITERACY?
August 30, 2019HOW TO SPOT A FINANCIAL SCAM?
HERE ARE SOME CLUES TO HELP YOU SPOT FINANCIAL SCAMS
1) PHANTOM RICHES
A scamster may dangle the prospect of wealth, enticing you with something you want but can not have it like this promise- “your investment of Rs100,000 will produce Rs5,000 very month for 50 years”. If it sounds too good to be true it probably is!. You must view all promises skeptically. Specially, every promise which has annual return above 9 % on invested amount.
2) EXPERT CRFEDENTIALS
A scamster might build credibility by claiming to be reputable expert.” Believe me, as Director of a reputed firm, i will never sell any investment that does not produce 20% returns”. “As a Director , I do not get involved in amounts less than Rs 5 lacs!”
3) FAMOUS PEOPLE BOUGHT IT
Any time a financial sale person tells you that Cousins of Amitabh Bachan and Rahul Dravid have brought these along with few members of the local “temple committee “-run with your money!. If the investments do not making sense on its merits, don’t be fooled in to thinking that a bunch of smart and well connected people have already vetted it and forked out their cash!
4) TIT FOR TAT OFFER
A scamster might offer you a small favour in return for big favour. “I will give you a discount on my commission if you buy now -50% off on my commission or price. Such heavy inducements are always a red flag.
5) ONLY FEW POSITIONS ARE LEFT , ONLY FEW PIECES ARE LEFT
Be on the lookout for anyone creating a false sense of urgency by claiming :
-Limited supply of product/plots
– Limited days
– Limited positions
Reality is usually other ways around. If it is truly scarce, you do not have to ”push” to sell.
6) SIGNS OF A PONZI SCAM
– Investments returns are abnormally high
– Company makes impossible claims and guarantees like “double your money back” in six months
– Company makes it difficult to withdraw your money by having such clauses.
7) SIGNS OF PYRAMID SCHEMES
-The emphasis is on to recruit new distributors, new agents etc and not product marketing
-The business has very high “start-up cost” .Or it could be high “signing amount”.
-The company will not buy back “unsold” inventory.
8) IT SCAM
You get a phone call from someone claiming to be an I.T officer, claiming that you have an unpaid income tax. If you do not make immediate payment, the caller says “you will be arrested or face law suit in court. Or You pay —— amount through me to settle the matter.”. Another vesion is asking you to pay ————amount to get immediate IT refund.
9) CHARITY SCAM
Following tragedy [death of husband or child], you receive an appeal from someone claiming to represent a charitable organisation who ask you for a donation. You are in emotionally weak moment and will offer to donate amount in the memory of the departed soul.
10) INTERNATIONAL LOTTERY SCAM
You will receive SMS or Email or direct call saying that your Mobile has won an international lottery held at London held by a WALMART group or some big Company name. The amount is too big to be true. It may turn out to be half a million US $ or 20,000 UK pounds. Everything about them will be foreign sounding-the address and thenames.Also, they may tell you that if details are not given fast, the money gets surrendered as per UK laws. They want you to share your bank account details.Once you share your account details, you would know , who won the lottery!.
11) INHERITANCE SCAM (NIGERIAN EMAIL SCAM]
You will receive Email from someone with a link, who claims to represent a rich old lady who recently died. Four million dollars can be shared by 50:50 if you help to take the money out of such and such African county. They want you to shares bank details and you need to make initial payment for legal fees for dealing with RBI or some thing like that. There are many bulk email and Mobile sending companies in big metro cities. They peddle in these at very low rates. Such emails directories are available for various types of people groups. Suppose, you want to target Credit Card users from class -2 cities, it can be done.
12) CREDIT AND DEBIT CARD SCAMS
Scamsters do not need your credit/debit card to take out your money. In more than 90% cases, they steal the card details and then start spending using your card. They get the card details either from you directly or from unsecured websites. Or from online shopping activities or installing spyware in your computers operated from remote location. This scam is pretty common these days. Another variant of this scam is to call you on your Mobile , claiming to represent your bank and collect details like PIN or three digits behind each card.
FAMOUS INVESTMENT SCAMS OF INDIA
This is only to give you a flavour of kind of scams that has happened in India .Certainly it is not a complete list.
1) PLANTATION SCAM
In the early 1990’s there were number of plantation companies who swindled thousands of crores
from gullible people. A few names are given below:
Golden trees plantation, Chennai.
Anubhav tree plantation, Chennai
Golden forest plantation, Punjab
Their” modus operandi” are similar. Each investor was offered “trees on ownership”- like Teak, Eucalyptus, “Maanijam” etc. People were offered astronomical returns for few thousand rupee investments. The application forms were distributed using channels which were used to operate for stock market and Company deposits. Stock brokers who distributed or canvassed for these schemes were offered abnormal commissions. And, there were advertisements in leading newspapers about this great investment opportunity. Special emphasis was given on the news that Agricultural income as Tax exempt. Money and trees disappeared one fine day !.
2) GOAT, EMU AND RABBIT FARMING SCAM
In the scams, investors were offered a share in the farm breeding goat, emu or rabbit farms situated in some remote area. Strategy was similar to Plantation scam. Wonderful brochures with great financial forecasts were circulated. Agriculture and livestock farming were sold as “tax free“investments. The net result is that lacs of people lost their hard-earned money.
Not were excreta was left behind!
3) PEARL AGRO SCAM[PACL]
This was a Rs.45,000crores scam wherein lakhs of people have been swindled. They collected money from investors across the country like a pyramid scheme, promising agricultural land. Money was also collected as fixed deposits with attractive interest rates for investors and commission for agents. They appointed various Insurance agents, ladies and retired as collection agents. Total land involved is estimated at 1, 85, 00,000 acres. Even after 10-15 years cases are going as in various courts. But, most investors have lost or are likely to lose thier money.
4) SAHARA INDIA PARIWAR SCAM
They collected around Rs.25,000crores money through fully convertible debentures and other deposits. The money was diverted to various projects like Infrastructure, Real estate, Airlines, Housing etc. The big boss is still in jail. From what I read, even supreme court is finding it difficult to collect money.! But, large number of investing public lost money.
5) SARADHA CHIT FUND SCAM
Close to 20lakhs investors mostly from West Bengal were swindled for around Rs.30,000 crores plus .200 companies were floated and these scams were operated thoroughly 16,000 employees . The money collected was used in various investments like reality, exports, Media, Automobile parts and so on. There is political slugfest between different political parties on this. But, for most investors’ money is gone!
6) SOLAR POWER PANEL SCAM IN KERALA
This is the scam which resulted in the exit of a CM. The scam involved, promising partnership in a business of selling solar panels to save energy bills. Huge returns were promised to investors who invested in to franchisee position of Solar Manufacturing Company. They speciality targeted “well to do” people with black money as potential partners. Because of this strategy, vast majority of those who got cheated did not come for want forward to register even a police complaint.
7) HARSHAD MEHTA SCAM
This scam happened in 1991-92 period. Harshad Mehta and his associates diverted Rs.5000 crores from the banks to stock brokers. He artificially jacked up prices of certain shares in which he had taken strong position in advance. The shares that were kept us security was based on ballooned prices. When the scam got exposed, the stock market crashed , along with it security value of banks also crashed. Few Banks had to close down due to this scam.
8) KETAN PARIKH SECURITIES SCAM
Ketan conned many public sector banks and stock exchange let Allahabad and Kolkata and brought shares in fictitious names. He manipulated shares prices to reach astronomical levels. when the scam got exposed the stock market crashed, so were few banks. He cultivated good relationship with celebrities like Amitabh Bachan, Famous producer/ Diamond trader Bharat Shah etc. He manipulated shares of select companies (known as K-10 shares). Shares of Zee telefilms was manipulated to go from Rs 120/- to Rs10,000/- without any fundamental change its finances. Large number of innocent (stupid?) investors who bought shares at high levels, lost everything.
9) SATYAM SCAM
It is one of the biggest corporate scandals involving publicly listed Satyam computer services Ltd. Ramalinga Raju, the MD of the company manipulated balance sheets and P/L of the Company to the extent of Rs. 2000 crores. This is like Rs 30,000 crores these days. He diverted money from wellestablished I.T firm to his real estate firms illegally. The diverted money was used in various real estate projects that he started. His real estate ventures were known as MAYTAS, opposite of SATYAM.When the scam was exposed, the share prices of Satyam crashed from 542/- to Rs.6.30 per share. Millions of shareholders who had invested in to this Company lost 99% of their wealth. Raju
went to jail which is no consolation for people who lost everything.
10) ROOP BANSALI SCAM
Roop Bhansali was running a chain of financial firms- CRB capital markets, CRB mutual funds and many others. He collected few thousand of crores from public by offering the attractive returns for fixed deposits and debentures. Many of the firms that he operated were in fictitious names.After collecting money, it was further diverted to the “paper companies” owned and operated by his friends and relatives. Once the scam got exposed most of investor’s money was gone.
11) NSEL SCAM
This is a Rs 6000crores scam involving commodities exchange. This scam was mastermind by Jignesh shah through various group companies and commodity exchange firms and brokers. Number of shell Companies were used for diverting gullible investors’ money.
12) STOCK GURU SCAM
This is a Rs.500crores fraud involving two lakhs people. It was operated by a couple team. They promised 20% return on investment every month. Means ,on Rs 1lakh investment Rs20,000/- return every month. To gain confidence, they kept giving return for few months, then the investors would increase greed and invest higher amount. Suddenly, the couple vanished. They changed names and identity and continued with similar type of cheating else where .They are arrested and case is going on, but investors lost most of the money.
