How Not to Become a Victim of Forex Fraud – Forex Trading Articles

Forex Scam - what to consider to prevent forex and commodity fraud

By Victor Romain, for forex-awards.com

Specific Investment Swindles and How They Worked

There’s a saying among swindlers that it’s not the scam that counts, it’s the sell. Judging from the number of arcane and often outlandish schemes that have been employed to separate otherwise prudent people from their money, the saying would seem to reflect reality. The evidence is that if people can be made believers, they can be sold practically anything. Here are just two of the ways in which hustlers of phony investments have won the confidence of persons whom they planned to victimize.

The Old-Fashioned Ponzi Scheme. It’s become one of the oldest and most often employed investment schemes because it’s proven to be one of the most lucrative. While there are innumerable variations, here is how a person we will call Frank C. practiced it. At the outset, Frank approached a relatively small number of influential persons in the community and offered them the opportunity to invest—with a guaranteed high return—in a computer-generated program of arbitrage in foreign currency fluctuations.

To be sure, it sounded high tech and sophisticated but Frank had his eye on sophisticated and well-heeled victims. Within a short period of time, he approached and sold the scheme to still other investors then promptly used a portion of the money invested by these persons to pay large profits to the original group of investors.

As word spread of Frank’s genius for making money and paying profits, even more would-be investors anxiously put up even larger sums of money. Some of it was used to recycle the fictitious profit payments and, like a pebble in the water, the word of fast and fabulous rewards produced an ever-widening circle of eager investors. And more money poured in. And Frank C. left town a wealthy man.

The Ponzi scheme is just one type of a High yield investment program or HYIP. HYIPs are when the swindler and his affiliates defraud investors through promises of extremely high return on investment. Of course, these promises are just scams and many investors can consider themselves lucky if they don't lose most of their money in these types of scams. The swindlers convince the prospective investor that the returns are generated through their unparalleled skills at investment, however the swindler's business model is very simple and doesn’t depend on any kind of business acumen or investment insight.

Automated trading robots

Then there are the automated forex trading robots or software’s and expert advisor software’s. There are plenty of these in the market. Some of them might help you, but many of them will cost you more money than you earn even if they are offered for free. Learn more about these here. And this is another great article on the subject.

Another popular scam is based on signal generators

To trade forex you need a forex broker and of course there are some forex broker scams out there as well. See an example of a forex broker scam here.

Another type of forex scam is the Managed Accounts Fraud.

Who are the Investment Swindlers?

They are a faceless voice on a telephone. Or a flashy web site on the Internet. Or a friend of a friend. They may perform surgery on their victims’ savings from a dingy back office or boiler-room or from the vast reaches of cyberspace or from an opulent suite in the new bank building. They may wear three-piece suits or they may wear hard hats.

They may have no apparent connection to the investment business or they may have an alphabet-soup of impressive letters following their names. They may be glib or fast-talking or so seemingly shy and soft-spoken that you feel almost compelled to force your money on them. The first rule of protecting yourself from an investment swindle is thus to rid yourself of any notions you might have as to what an investment swindler looks like or sounds like.

Indeed, some swindlers don’t start out to be swindlers. There are case histories in which individuals who held positions of trust and esteem—accountants, attorneys, bona fide investment brokers and even doctors—have sacrificed their ethics for the fast buck of running an investment scam.

In other cases, investment programs that began with legitimate intentions went sour through happenstance or poor management, leading the promoter to mishandle or abscond with investors’ capital. Whether an investment is planned as a scam or simply becomes one, the result is the same.

Protecting your savings against fraud involves at least three steps:

Carefully check out the person and firm you would be dealing with.
Take a close and cautious look at the investment offer itself. And continue to monitor any investment that you decide to make.
No one of these precautions alone maybe sufficient.
Who are the Victims of Investment Fraud?

If you are absolutely certain it could never be you, the investment swindler starts with a big advantage.

Investment fraud generally happens to people who think it couldn’t happen to them. Just as there is no typical profile for swindlers, neither is there one for their victims. While some scams target persons who are known or thought to have deep pockets, most swindlers take the attitude that everyone’s money spends the same. It simply takes more small investors to fund a large fraud.

In fact, some swindlers deliberately seek out families that may have limited means or financial difficulties, figuring such persons may be particularly receptive to a proposal that offers fast and large profits. A favourite pitch is that small investors can become rich only if they learn and employ the investment strategies used by wealthy persons.

Naturally, the swindler will teach them! Although victims of investment fraud can differ from one another in many ways, they do, unfortunately, have one trait in common: Greed that exceeds their caution. They also possess a willingness to believe what they want to believe.

Movie actors and athletes, professional persons and successful business executives, political leaders and internationally famous economists have all fallen victim to investment fraud. So have hundreds of thousands of others, including widows, retirees and working people—people who made their money the hard way and lost it the fast way.

How Investment Swindlers Find (or Attract) Their Victims

Swindlers attempt to mimic the sales approaches of legitimate investment firms and salespersons. Thus, the fact that someone may contact you in a particular way—by phone, mail, electronic mail or even a referral should not in itself be viewed as an indication that the investment is or isn’t shady.

Many totally reputable firms also use the same methods to effectively and economically identify individuals who may have an interest in their investment products and services. Bearing in mind that “investigate before you invest” is good advice no matter how you are approached, these are some of the methods con men (and women) commonly employ to contact their victims-to-be. Telephone So-called telephone boiler-rooms remain a favourite way for swindlers and their sales squads to quickly contact large numbers of potential investors.

Even if a swindler has to make 100 or 200 phone calls to find a mooch (one of the terms swindlers use for their victims), he figures that the opportunity to pocket thousands of dollars of someone’s savings is still good pay for the time and cost involved. Mail Some sellers of fraudulent investment deals buy bona fide mailing lists—names and addresses of persons who, for example, subscribe to a particular investment-related publication, who have responded to previous direct mail offers, or who have other characteristics that swindlers look for.

In the hope of avoiding notice by postal authorities, mail order swindlers may not make a direct or immediate pitch for your money. Rather, they often seek to entice you to write or phone for more information. Then comes a call from the salesperson or the person who closes the deal. Some may phone even if you didn’t respond to the mailing.

The Internet

Access to the Internet has increased dramatically in the past few years and consumers are becoming more comfortable conducting business (shopping, banking, even investing) online. But crooks also recognize the potential of cyberspace. The same scams that have been conducted by mail or phone can now be found on the Internet, and new technologies are resulting in new ways to commit crimes against consumers.

Advertisements: a newspaper or magazine ad may offer (or at least hint at) profit opportunities far more attractive than available through conventional investments. Once you’ve taken the bait, the swindler will then attempt to “set the hook. ” Even though investment crooks know that regulatory agencies regularly monitor ads in major publications, some nevertheless use such publications in the hope of being able to hit-and-run before an investigator shows up. Others advertise in narrowly circulated publications they think regulators may be less likely to

One of the oldest schemes going involves paying fast, large profits to initial investors (actually from their own or other peoples’ investments) knowing that they are likely to recommend the investment to their friends. And these friends will tell their friends. Soon, the swindler no longer needs to find new victims; they will find him.

The “Reputable” Business

Some swindlers go first class. Using profits from previous swindles, they rent plush offices, hire an interior decorator and professional-sounding receptionist and open what has the appearance (but not the reality) of a reputable investment firm. You may even have to phone for an appointment, and once there don’t be surprised to be kept waiting (that’s intended to make you all the more eager).

This kind of swindler’s success depends on how long he can keep his victims from knowing they are being cheated. Investors are assured that their large profits are being reinvested to earn even larger profits. Such a swindler may join local civic groups, contribute to charities, and generally play the role of solid citizen.

The techniques investment swindlers use

Their techniques are as varied as their methods of establishing contact. What they all have in common, however, is their ability to be convincing. The skills that make them successful are essentially the same skills that enable any good salesperson to be successful. But swindlers have a decided advantage: They don’t have to make good on their promises. In the absence of this responsibility, they have no reluctance to promise whatever it takes to persuade you to part with your money. Below are some of their techniques:

The expectation of large profits

The profits a swindler talks about are generally large enough to make you interested and eager to invest—but not so large as to make you overly sceptical. Or he may mention a profit figure he thinks you will consider believable and then, as a further enticement, suggest that the potential profit is actually far greater than that.

The latter figure, of course, is the one he hopes you will focus on. Generally speaking, if an investment proposal sounds too good to be true, it probably is.

Low Risk Some are so blatant as to suggest there’s no risk—that the investment is a sure money maker. Obviously, the last thing a swindler wants you to think about is the possibility of losing your money. (If you ask how you can be certain your money is safe, you can count on a plausible-sounding answer. Besides, at this point, he figures you will believe what you want to believe.) To make his pitch more credible, a swindler may acknowledge that there could be some risk—then quickly assure you it’s minimal in relation to the profits you will almost certainly make.

A con man may become impatient or even aggressive if the question of risk is raised—perhaps suggesting that he has better things to do than waste time with people who lack the courage and foresight needed to make money! With this kind of put down, he hopes you won’t bring up the subject again.

Urgency

There’s usually some compelling reason why it’s essential for you to invest right now. Perhaps because the investment opportunity can “be offered to only a limited number of people.” Or because delaying the investment could mean missing out on a large profit (after all, once the information he has confided to you becomes generally known, the price is sure to go up, right?. Urgency is important to a swindler. For one thing, he wants your money as quickly as possible with a minimum of effort on his part. And he doesn’t want you to have time to think it over, discuss it with someone who might suggest you become suspicious, or check him or his proposal out with a regulatory agency. Besides, he may not plan on remaining in town very long.

Confidence

Swindlers sound confident about the money you are going to make so that you will become confident enough to let go of your savings. Their message is that they are doing you a favor by offering the investment opportunity.

A swindler may even threaten (pleasantly or otherwise) to end the discussion by suggesting that if you are not really interested there are many other people who will be. Once you protest that you are interested, he figures your savings are practically in his pocket. Although you can’t necessarily spot a con man by the way he talks, most are strong-willed, articulate individuals who will dominate the conversation. The more they talk, the less chance you have to ask questions.

Questions That Can Turn Off an Investment Swindler

The first line of defence against investment fraud is your inalienable right to ask questions and—until you get the right answers to say “no.” And mean no. Not surprisingly, this is usually an investment swindler’s first point of attack.

To keep you from asking questions, he asks them! Invariably, the questions have “yes “answers, such as “You would at least be interested in hearing about such a fantastic investment opportunity, wouldn’t you?” or, “You would like to make a large amount of money in a short period of time with little or no risk, right?”

One difference between a reputable investment firm and a swindler is that reputable firms encourage you to ask questions, to obtain as much information as possible, to clearly understand the risks involved, and to be entirely comfortable with any investment decision you make. The only thing a swindler wants is your money.

Below are some of the questions that swindlers don’t like to hear:

1. Where did you get my name?

If the response is that you were chosen from a “select list of intelligent and prudent investors,” that select list may be the telephone directory, or a purchased list of persons who’ve bought certain types of books, subscribed to particular magazines, or responded to newspaper ads.

If you have made ill-advised investments in the past, you can be pretty sure your name is on someone’s alumni list. It’s the list swindlers prize most. Easy preys who are eager to recoup (but are doomed to repeat) their earlier losses.

2. What risks are involved in the proposed investment?

Except for obligations of the U.S. Treasury, which are considered risk-free, all investments involve some degree of risk. And some investments, by their nature, involve greater risks than others. Keep in mind that if the salesman had knowledge of a sure-thing, big-profit investment opportunity, he wouldn’t be on the phone talking with you.

3. Can you send me a written explanation of your investment so I can consider it at my leisure?

For someone peddling fraudulent investments, that can be a double turn-off.

Firstly, most crooks are reluctant to put anything in writing that might cause them to run afoul of postal authorities or provide material that, at some point, might become evidence in a fraud trial.
Secondly, swindlers don’t want you to do anything at your leisure. They want your money now. It’s a good rule of thumb that any investment which “absolutely has to be made immediately” shouldn’t be made at all.

4. Would you mind explaining your investment proposal to some third party, such as my attorney, accountant, investment advisor or banker?

If the answer goes something like “normally, I’d be glad to, but there isn’t time for that,” or if the salesman snaps back by asking “can’t you make your own investment decisions,” these are virtually certain clues that your final answer should be an emphatic “no.”

5. Can you give me the names of your firm’s principals and officers?

Although some persons who establish and operate dishonest firms change their own names as often as they change their firms’ names, even the hint that you are the kind of investor who checks into things like that can be a fast turn-off for a swindler.

6. Can you provide references?

Not just another list of other investors who supposedly became fabulously wealthy (the names you get may be the salesman’s boss or someone sitting at the next phone), but reputable and reliable recommendations such as a bank or well-known brokerage firm that you can easily contact.

7. Do you have any documents such as a prospectus or risk disclosure statement that you can provide?

This may not be available in connection with all types of investments but in many investment areas—such as securities, futures and options trading—it’s required. And there can be requirements that you be provided with this information and acknowledge in writing that you have read and understood it. Obviously, it’s not the sort of information a swindler is likely to distribute.