Fraudsters are rampant during the holiday season and are typically one step ahead of investors, luring unsuspecting people with their scams to generate more income.
A popular scam investors receive contain a 10-page "report on a special situation filled with lots of hype," said Ron McCoy, a portfolio manager on Interactive Brokers Asset Management, the Boston-based online investing company and founder of Freedom Capital Advisors in Winter Garden, Fla. The so-called report consists of many pages of "really juicy tidbits" and comparisons to other stocks that soared 100-fold, but on the last page in a small font, there is a mention that the writers of the article were either given shares or paid a fee to write the "research" report, he said.
Although the stock is trading for $2 a share, unsuspecting investors will fail to read the fine print and also look to see that the stock had traded for only 10 cents just four months ago.
"It's one of the biggest scams I have seen and it's a classic pump and dump," McCoy said. "Investors should be on the lookout when they get these free 'reports.'"
"Pump and dump" schemes are more prevalent now as investors have access to more data and can trade easily from their smartphone and penny stocks are often targets. The only way for owners of penny stocks to generate income is to find a buyer for your shares, said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla.
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"This is the reason you see many 'convicted' investors who routinely put out motivated comments or 'fake news' to influence the readers," he said. "Investors should realize that stock prices cannot be talked up or talked down, reacting to unverified information only helps the buyers of worthless stocks."
Investing in "pre-IPO private shares" can be a mistake since investing in private shares or warrants in most cases is illegal for individual investors who are non-accredited, Ma said.
"Whenever your family, friends or neighbor come to ask you to buy in, simply walk away immediately and never talk about the idea again," he said.
Private shares that lack public information are only valuable to investors who believe in the founders' visions and company's business model. Since this information is not made public, it is easy for unethical salesmen to use their personal relationship to trap you, Ma said.
"This is the reason why the SEC has tight regulations to protect the general public from deceptive sales practice of private securities," he said. "I have not yet seen a profitable 'non-scam' private share investments for retail investors."
Other online scams are plentiful as even major technology companies have become targets, losing millions of dollars.
Impersonation is likely the most expensive investment scam today, said Joseph Carson, chief security scientist at Thycotic, a Washington D.C.-based provider of privileged account management (PAM) solutions. These scams occur when someone's identity has been stolen or compromised; the criminal impersonates a trusted identity and influences someone to transfer money into a his or her account. While fraud claims are currently under $1 billion, phishing scams will only become more common. Even two of the world's largest companies, Facebook (FB) and Google (GOOGL) , became victims of over $100 million, he said.
Cryptocurrency investments are another area in which scams are increasing significantly as the value of currencies such as Bitcoin rise. While there are many eager and "hungry" investors who want to get involved, most of them have little to no knowledge about how it works, Carson said.
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"This leads to ultimately getting scammed into handing over money to cybercriminals," he said.
Miscreants are often attracted to schemes that skirt current federal and state laws, but generate strong revenues without significant on-going investments, said Lenny Zeltser, vice president of products at Minerva Labs, an Israel-based provider of endpoint security solutions. Some of the fraud occurs in the trademark registration industry where scammers sent postal solicitations requesting people include a trademark in various private registries.
"The letters were designed to look like an official invoice for trademark registration and requested that the recipients issue payments to maintain trademark ownership," he said.
Scammers frequently target and approach Craigslist users via text messages in overpayment scams. The interactions are designed with an explanation that in order for the seller or the victim to receive more funds from the buyer, who is the scammer, than the seller originally requested, they must agree to a second payment system. After several interactions, the scammer sends a fake payment confirmation email designed to look like as if it came from PayPal.
The victim is persuaded to wire the overpayment funds to the scammer's money mule via a service such as MoneyGram, Zeltser said.
"Traditional scams also continue to increase. This includes fake invoices and fines/penalties that demonstrate that people would rather pay the amount than face legal issues," Carson said.
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