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Institutional investment fraud

In the current environment of low interest rates, people are searching for profitable options to earn more. Certain firms offer too lucrative investments, like shares, pension funds, and pyramid or Ponzi schemes. 

People are not exposed to such options as micro-cap stocks that fall below minimum assets. In addition, the lack of information disclosure and regulatory oversight leads to fraud as the risk of discovery is low. 

The common problem with penny stocks is that they have low liquidity, and promoters try to sell them, but their daily volume is low. As a result, the traders indulge in artificially manipulating prices through unscrupulous promoters, trying to control the trade. 

Pyramid schemes are difficult to spot because the companies work as per recognised trade regulations and indulge in multi-level or direct marketing strategies. They attract people into the scheme by offering seductive plans to earn and gain profits. 

People are contacted by a family member or a reliable friend who wants the target to register and benefit through the seemingly lucrative opportunity. The close friends are contacted through recruitment events, social media, mail, or phone. 

It is non-sustainable and benefits only those on the top of the scheme. The reps gain only through recruits. They earn a percentage of all the gains when a new member joins and pays the membership fee. 

When the scheme collapses, the investors lose their money, and the perpetrator spends on expenses, accelerating the losses. Such plans involve multi-level marketing but lack genuine enterprise or product to sustain.

Ponzi schemes are about fictitious projects and plans which may or may not exist. If the plan exists, the investors may not get the promised returns after years of investment. In addition, the projects generally do not keep up with the payments that the investors expect to get. 

There are multiple techniques adopted by fraudulent sales representatives who pretend to be calling from a reputable institution, but they target people only to extract their pension details. Many fall into the trap of giving their personal information to callers who may impersonate a legal authority and adopt illegal ways to exploit such information. 

How To Reduce the Risks?

  • Invest through regulated domestic and low-risk accredited dealers.

  • If the company offering the plan changes it very often and tries to sell the idea of quick money or offers a “once in a lifetime opportunity,” money-back guarantee,” or “easy gains without much work”, they are forced to buy it secretly, without consulting friends –it indicates a fraud.

  • Educate yourself about the plan to recognise different types of schemes. Conversely, if you face fraud, report it to the authorised agencies.

Date Published: Sep 11, 2023

Types of fraud

A-Z of fraud

To help understand which fraud you've been affected by, we've categorised them into an alphabetical list.

What is fraud and cyber crime?

Cybercrimes can be of two types. First, it can be cyber dependent, where the fraudsters use online devices to convince the victim to accept their offers.

Advance fee fraud

If you are trying to get a loan for a house or a car, they ask to meet the provider to get the financing arrangement and pay the finder's fee in advance.

Corporate fraud

Corporate frauds can be complicated, committed either by the firm or an individual. Nevertheless, it mostly involves cheating where the employee or the firm.

Individual fraud

There are many types of individual frauds related to advance fees, investments, insurance brokers, bogus tradespeople, Ponzi schemes, pension liberation.

Online fraud

Hence the number of cases of online fraud is increasing each year, and most such cases include – account takeover, direct frauds, or scams related domain names.

Identity fraud and identity theft

The criminal uses the stolen identity of another person living or deceased to conduct unlawful activities like obtaining goods or services in another's name.

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