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Why You Shouldn't Believe Everything You Read When It Comes into Online Investing

Aug 23, 2007
Every investor dreams of being an early stockowner in a Microsoft or Intel Corp. Dishonest brokers and stock promoters prey upon this greed and offer unsuspecting investors low-priced stocks in companies with new products or technologies (like the self-chilling soda can).

Many fraudulent Internet messages are about general stock-picking advice or mention other investment possibilities. However, some messages tout specific stocks, moneymaking ventures, and service providers. Just remember one simple rule: Don't believe anything you read until you've done some of your own research first. The following are ten examples of online investment scams that you should be wary of.

#1 Multilevel marketing plans and pyramid schemes

Pyramid schemes, sometimes called multilevel marketing plans, are sure ways to lose money. Individuals are often contacted via e-mail messages and encouraged to recruit six friends; those six people recruit six more friends -- and so on, in a relentless search for new recruits. Profits from these schemes don't come from selling products or distributorships but from recruiting new participants. Investors are left with garages full of products and the loss of their investment.

#2 Financial chain letters and Ponzi schemes

Generally, the letters states that you're missing out on a big investment opportunity. Most financial chain letter promoters claim that if you participate, your name will eventually be at the top of millions of lists and you'll receive millions of dollars. Anyone can break the chain and deprive you of your possible "gains." Even if the financial chain isn't broken, about 95 percent of financial chain letter participants don't ever receive anything in return for their "investment."

#3 Cons based on bogus research reports and newsletters

More than 70 million adults log on to the Internet each day. By using mass e-mailing programs, fraudsters can quickly and inexpensively reach more people than these publications can. With one keystroke, fraudsters can reach thousands, even millions, of potential online investors. Often, you may receive unsolicited e-mail newsletters that tout stocks expected to double or triple in value over a very short time.

#4 Phishing for your personal information

Phishing is a type of brand spoofing. An e-mail message is sent to you in an attempt to fool you into revealing your personal financial information or password data. Sometimes, to gain your personal financial information, "Phishers" will use social engineering to gain your confidence. The term phishing is also used to describe how fraudsters use sophisticated lures to deceive everyday Internet users.

#5 Nigerian e-mail letter investment scam

These e-mail messages promise that I'll receive millions in return for helping a VIP collect money trapped in a Central Bank. The plea for help assures me that the investment is 100-percent safe. Each version of the e-mail appeal is slightly different, but the scam remains the same: I'm guaranteed 20 percent of all recovered funds. In some instances, the fraudster will ask for enormous amounts of money for fees, taxes, traveling expenses, and so on.

#6 Investment hoaxes designed to get your cash

For example, a bogus press release stated that Uniprime Capital claimed to have documentation from the government of Spain indicating that the Plasma Plus was a breakthrough treatment for the virus that causes AIDS. The stock was touted online in several investment chat rooms as undervalued. In a few days, more than 5 million shares were traded, and the stock skyrocketed by 800 percent. The investment hoax cost investors about $20 million.

In a similar story, an individual issued a negative press release about Emulex, a fiber-optic company. In the press release, the fraudster claimed that the CEO had quit and that the company was restating its quarterly earnings. In an effort to cover his tracks, the fraudster went to a hotel room in Las Vegas to make his online stock trades on the day of the hoax. The stock dropped by 62 percent, and the con artist made $241,000 by short-selling the stock.

#7 Bogus IRA-approved investment schemes

Fraudsters are scramble the dreams of many investors with so-called IRAapproved or otherwise endorsed Internal Revenue Service (IRS) investments. Fraudsters frequently contact investors through bogus e-mail newsletters or Web sites to offer huge returns that will ensure investors an easy retirement. Investments include high tech to exotic livestock to real estate investment pools.

#8 Guaranteed high returns frauds

Many fraudsters provide online ads that guarantee "the potential to make a six- or seven-figure annual income." If an offer seems too good to be true, it usually is. So, check it out carefully before you put your money down.

#9 Get rich quick with investment seminars

Investors are encouraged via e-mail messages to enroll in expensive seminars to become day traders or to learn how to trade options, commodities, or futures. Often, unlicensed practitioners teach the seminars. These unlicensed practitioners are unlikely to disclose conflicts of interest. Attendees must also pay hidden costs, such as buying a particular brand of software from the investment seminar company and using an expensive interface for real-time data.

#10 Pump-and-dump schemes

Pump-and-dump schemes are swindles in which greedy people manipulate the stock prices so that they can make illegal gains. Frequently, pump-and-dump schemes target elderly investors. Fraudsters are using the Internet to perpetuate pump-and-dump schemes. This scenario is a classic scam; fraudsters artificially drive up the stock price and unload it on unsuspecting investors who believe the stock is on the rise.
About the Author
Adrien Brody (http://forex-trading-tutorial.com) is a full-time investor. He has been researching investment strategies and make his own living. You can learn more about his techniques at http://forex-trading-tutorial.com.
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