Investment Scams – What Consumers Need to Know

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Back to DFPI Consumer Resources ›› Investment Scams

One part wary, one part wise:

Your recipe for keeping safe from “too good to be true” investments

The offers arrive glittering with promise: invest in this market, buy this precious metal, trust this cryptocurrency. The temptations — a bigger bank account, a more secure future — are all too real. But beware: these “investments” often aren’t worth the paper they’re printed on, or the digital bytes they’re made of.

This page is devoted to helping you protect yourself from investment cheats, with ways to help you avoid fraud, and find investment opportunities that offer real promise.

Investment scams and the forms they take:

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Ponzi and pyramid schemes: Both depend on a constant supply of new “investors.” In a Ponzi scheme, returns are paid to earlier investors using the capital from newer investors rather than from profit earned. In a pyramid scheme, participants make money by recruiting others. In the end, both schemes collapse.

a boiler

Boiler room scams: High-pressure salespeople work over investors, urging them to buy overvalued or non-existent securities.

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Pump and Dump Schemes: Scammers enthusiastically promote (“pump”) a stock or other asset to inflate its price, then sell off (“dump”) their own shares. Victims are left holding worthless assets.

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Advance Fee Fraud: You’re charged upfront fees for the promise of generous returns which — surprise — never arrive.

Crypto sign

Cryptocurrency Scams: Cryptocurrency is rife with scams, including fake initial coin offerings (ICOs), pump and dump schemes, and fraudulent exchanges. Approach with caution!

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Affinity Fraud: Scammers target members of specific groups, such as religious o r ethnic communities, exploiting trust and shared affiliations to promote fraudulent investment opportunities.

red flag

RED FLAG ALERT: What to Watch For

Guarantees: All investments contain risk — a fact that scammers try to artfully avoid, by claiming to guarantee returns. When anyone offers a no- or low-risk investment, beware.

Urgency: There’s a big difference between actual deadlines and fake urgency. Watch out for “limited time offers” or high pressure tactics.

Ambiguity: Scammers love to hide behind a fog of muddled or misleading facts. The less you know, the better for them.

Cold calls: Legit offers usually don’t arrive out of the blue. Beware of unsolicited cold calls, emails, or social media investment offers.

Too good to be true: Scammers look to generate excitement so that you’ll lose your common sense. Always look out for: invitations to join exclusive investment organizations; claims of breakthrough technologies; penny stocks, and seminars, free meals, or travel offers.

What You Can Do

File a Report Online

If you think you are the target of a scam or that your rights have been violated submit a complaint online, call us at (866) 275-2677 or send an email to AskDFPI@dfpi.ca.gov.

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DO YOUR OWN RESEARCH

Be aware that the person telling you about an investment may not have done their research. Ask for financial statements that prove how revenue is generated with any investment opportunity.

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Last updated: Mar 28, 2024 @ 10:51 am