Nov 24, 2014

5 Ways Investment Scams Gain Your Trust ... and Money..

Financial products and money making opportunities are exploding across the world as investors look for new avenues to grow their wealth in this low interest rates environment. One of the most prominent bloom is the rise of the unregulated High Yield Investment Products (HYIP). These products typically offer high "guaranteed" returns of 20% or more and are often associated with a Ponzi Scheme. 

The recent explosion of a $1 Billion Ponzi scheme, SecureInvestment in America has hit the headlines of Bloomberg again. Forex Investors May Face $1 Billion loss as Trade Site Vanishes.
Here is the corporate video for SecureInvestment.

What is interesting is that the people behind SecureInvestment (The name itself is a big red flag!) are so marketing savvy that their website is more popular than, one of the world's largest forex trading platform, at one point of time. This Bloomberg article exposed some  of the marketing gimmick behind this Forex Trading Scam which they used to gain investors' trust... and their money.

Here are some of the tactics they used:

1) Actors posing as satisfied investors on their video testimonial

One of their most brilliant tactics. They  had 54 video testimonials from "satisfied" investors and apparently, they are actors who were paid $20 for the acting gig. These actors are packaged to look like successful and knowledgeable investors and their acting is so good that hundred of thousands of people parted their hard earned money to SecureInvestment.

2) Successful Trading Records

One of the investors who parked his money with SecureInvestment tracked the trade records which SecureInvestment published and verified them to be true. In this digital age whereby a good graphic designer can manipulate a slice of pizza to look like a beautiful woman using graphic design software, it is not hard to manipulate trading records. So what SecureInvestment can do is to manipulate the trade transaction by following the forex market and invent the trades after the market has moved. It doesn't take a genius to predict the future when you already know the future. This method can also be applied to unlicensed fund managers who claims high historical returns and want investors to pass money for them to manage.

3) High Returns

When your heart tells you that 250% pa is too good to be true, the Greed instinct overwrites whatever common sense people has and lure them into making foolish decisions. SecureInvestment delivered 281.34% in 2013. From a marketing perspective, tapping on a person's Greed is always one of the best way to get consumers to part their money with scammers whether it comes in the form of a huge discount or in the form of huge returns. It is also not always true that Ponzi schemes are always associated with high returns. For example, the Madoff Ponzi Scheme delivered reasonable 10-15% return consistently and lasted for decades before it was exposed.

4) Association with a Trusted source

Ponzi Schemes will always try to associate their product with a trusted source or authority figure. In this case, SecureInvestment make use of multiple video testimonial. Here are the tactics of some other Singaporean based schemes that have been exposed

- Profitable Plots, a UK landbanking scheme, sponsored advertisements on the prestigious English Premier League and were also featured on many traditional media in Singapore. Some people think that Profitable Plots must be legitimate as they have been advertising extensively on cable TV football channel and doing multiple roadshows at major shopping malls.

- SwissCash, a forex Ponzi scheme, misled people into thinking that it originated from Switzerland and named a real life successful fund manager as their CEO but the photo which they used is different from the real person

-Ecohouse, a Brazilian public scheme, claimed to be supported by Brazilian government to build subsidized housing for the Brazilian government. The Brazilian embassy in Singapore however denied that the Brazilian government has any links with the company.

5) Lucrative Referral Scheme

What is a better way for people to trust the product than getting their trusted friends to provide a personal testimonial about the product? Of course a little incentive, like a 10% referral fee will provide better motivation for their friends to share the product with everybody around them. On the flip side, if the product promises you 20% return a year and the referral fee is 10%, won't it be harder for the fund manager to make more than 30% in order to pay the investors, the referrers and their own operation cost? 

The people behind these schemes have often mastered the art of deception and is able to gain the trust and money of investors. Similar to gambling and "Trade-15min-and-be-rich" type of workshops, tricksters often prey on the laziness and greed of the human nature by promising them dreams of wealth and riches, while the fact is, the people that really benefit are the tricksters.

Ponzi schemes will always be around as long as people think that investing is a easy way out for an early retirement. Despite managing money for close to a decade, I am still learning new things about the financial markets and is constantly challenged by the curve ball thrown every now and then.

The only way to protect yourself from these schemes? Start learning about the basics of economics and financial instruments and get yourself educated before starting to invest in more complex products.

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