Tips on detection of fraud investment


THE proverb ‘there is no sweet without sweat’ can be applied in investment decision making because the sweet anticipated profits and returns without actual sweat has resulted in the loss of millions of hard-earned incomes. As people seek ways to grow their money, the world is increasing having fraudsters who’ve become so sophisticated in developing fraud investment schemes that promise higher returns but aim at swindling the unsuspecting investors. It is therefore very important to understand the characteristics associated with fraud schemes to avoid them whenever possible. Abnormally high returns
The first signal has to do with the profit or interest one will get within a short investment period. In these schemes, the investors are promised very high returns that are probably too good to be true and the way the money will be grown is not clearly explained to the investor. The lucky few would receive high returns but this is to attract more people to the schemes.
As an investor, be clear on how the high returns are generated. It is possible that some investments have high returns but always attempt to understand how this is generated in order to establish its credibility. Always remember that the higher the return, the higher the risk hence the need to be alert. Any investment that promises guaranteed high returns should be carefully examined before investing in it. Unclear business line Some of the greatest Ponzi schemes in the world had people working several years for a non-existent business while getting paid for the job they did. Unknowingly to them, the businesses thrived on swindling people by making them believe the business was doing something when in fact not. One should understand that most of these fraud schemes work on a principle of robbing money from one person to pay another. One principle to use is “If you don’t understand the business model after a five-minute explanation, don’t invest.” Fraudsters usually use complicated explanations of the business to confuse the investors. The presence of physical business locations, employees, certificates and evidence of returns is no guarantee that the scheme is not fraud because these may be forged or not relevant to the business.
As you plan to invest your money, seek to understand the product or service involved with those businesses, who are the customers, what really does the business do and how profitable is it. Seek to understand the business line and with this knowledge, it will help you make an informed decision. Reinvestment requirement Most of the fraud schemes would easily collapse if many investors were to withdraw their money. To sustain the scheme, they promise higher profits to those that reinvest the money earned. They entice the investor not to withdraw but instead put more money and recruit more people to invest in exchange for higher returns. However, this pressure to reinvest should be seen as a signal for a fraud scheme because of the characteristic being associated with many fraud schemes. The earlier you withdraw your investment, the safer you would be. Do not wait until it is too late and end up regretting. Inner Circle as promoters Many people have for long held the assumption that human beings are selfish by nature and as such, it is rare to share secrets to wealth creation. However, most fraud schemes involve people recruiting others to invest in the scheme with a promise that, the more recruits, the higher the amounts. In these schemes, close family and friends are mostly the promoters and will entice you to believe that there is a lot of money generation involved. This is a powerful psychological tactic used by fraudsters to build credibility through association with reputable people who are known to them. After all, it is easy to trust people in the inner circle than strangers and these people would often lie that they are benefiting financially when that may not be true. No matter who introduces you to the business which gives high returns in a short time, take time to analyse the business yourself by checking the red flags and clearing the doubts you may have. Remember that even those in your inner circle are seeking for money and can also fall prey to scams hence the need to be careful. Unregistered Businesses In most cases, people are more interested in getting higher benefits from the investment and care less to know more about that business. In this increasingly digital world, some companies would operate online and have more global presence. Because of this, fraudsters would lie to an investor that there is a foreign company running a particular investment scheme that can earn one a higher income. Before you invest, consider scrutinising the registration status of that business and inquire why it is not registered in your locality. Further, find out its legality in the claimed place of registration by contacting offices in those places. Be careful with businesses that are not registered because when fraud is detected it is difficult to trace anyone if their identity is hidden and the business is not in any way registered especially locally. Always remember that the search of quick money often blinds one’s reasoning and every opportunity to make money may be taken upon. However, it is important that you do not let your desperation for money lead you to overlook some signals of fraud schemes. Instead, be steadfast and knowledgeable enough not to be a victim.
Whenever in doubt, always ask because to be forewarned is to be forearmed.
The author is an economist.

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