Beware of Internet investment scams.
Beginner Stock Market Investing, Various Investment Information
If you are a serious investor in stocks, the Internet is a great resource for research and information. Unfortunately, because of the lack of regulation, a lot of scams are perpetrated by con men who are looking to part you from your money. Many of these scams date back a long way and have been around for quite a while. On the Internet, you need to take the scams more seriously because any conman can create an impressive looking website with links to genuine websites that will leave you with the impression of dealing with a large and reputable company. Some of the more common scams are described below:
Ponzi Scheme. This is the original pyramid scheme where money from new investors is used to provide a return to older investors. All Ponzi schemes will eventually collapse when the money coming into the scheme proves to be insufficient to pay for the money going out of the scheme. The lure of the Ponzi scheme for investors is the ability to promise high rates of return without undertaking any investment activity whatsoever.
“Pump and Dump”. This is an illegal practice in which a group of investors by a sizeable amount of stock and then recommended to thousands of investors. The stock price peaks at which point this group of investors will dump their stocks causing prices to slide. As always, it is the thousands of innocent investors who will carry the can for the losses. Many of these stocks relate to small companies that trade, for example, on the over-the-counter bulletin boards and have a small floating stock which makes price manipulation easy. This is compounded by the fact that little or no information is normally available about OTCBB stocks. A variation on this scheme is called “short and distort” where the manipulators sell short and then spread unfavorable rumors to drive down the stock price.
“Offshore Investments” stocks. These schemes will talk about attractive stock investment opportunities in other countries, often from the lesser developed world. Typically, it will be almost impossible for an investor to gather any credible information to research these opportunities and you should be extra careful with this kind of offer. You should also bear in mind that your local law enforcement agency can do very little to go after these people and try and get your money back.
“Prime Bank” investment programs. The term Prime Bank is used in connection with the top banks in the world (say the top 100) who only deal in the highest quality stocks and other investments. Conmen often misuse the term to lend legitimacy to their schemes which promise to invest in and deliver huge returns from prime bank paper. You should exercise caution because these prime bank investments often will not materialize and you will end up losing your money.
Many of these schemes are launched via bulletin boards of which there are thousands on the Internet. These bulletin boards are often valuable sources of comment and information but can be used to provide misleading messages because of the lack of regulation. For instance, any conman can promote a pump and dump or short and distort scheme by posting inappropriate comments on the bulletin boards. You cannot really determine whether the person posting these comments is genuine or not. You need to be extra careful while using this kind of information especially about small-company stocks that are thinly traded.
Tags: Investing, offshore investment, online investing, ponzi scheme, scams, Stock Market, Stock Market Investing