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Avoid Investment Scams

Jan 11, 2008
The growing number of people using investments as a method of building wealth has attracted a growing pool of scam artists preying on people's ignorance and ambitions. Most of the emails that appear in the average inbox are scams, no matter how legit they look.

The lack of regulation in cyberspace makes it easy for scam artists to mimic a legitimate site, and penetrate the money-making industry, twisting the information ever so slightly to trick investors into falling for their scams.

Pyramid Schemes

In the most obvious form, a pyramid scheme is easy to avoid. However, today's scams are hidden behind turnkey websites, business opportunities, investing networks, and online course packages. These schemes ask you to pay a certain amount of money for 'secret' information, introduction to an elite group of people, or you are invited to join an almost 'cult' following of a certain guru.

However, when you sign up, you learn that making money involves setting up your own affiliate of the site, and continuing to promote.

How to identify these scams:

This type of site leads you through 2 or 3 pages to a squeeze page. The squeeze page is full of freebies, benefits, and testimonials. It usually takes three or four tries to scroll to the bottom where you are asked to pay.

Google the guru and company's name, do they have articles and participate in forums? Are their articles published on other websites? Does anyone else talk about this guru? Or, does the guru's organization resemble more of a cult than an investment organization.

Another way to test an investment opportunity is to search for their membership in regulatory institutions, ask about their experience, certification, education, etc. Take a step back and rethink joining the organization if it is impossible to talk to someone before signing up and paying your money.

Avoid any scam that doesn't follow the normal regulatory and investment practices. And last, skip any product that makes it sound like the founder is the only one who knows an easy method of generating substantial wealth with low risk. If methods like this existed - the traders would be using them.

Pump and Dump Schemes

A group of investors hold large number of shares in a company. They hype the stock through articles, forums, and websites. They create a frenzy. As soon as a bull market is created, they dump their stock.

Pump and dumper participants often twist the techniques of short selling. Short selling is a legal and legitimate practice, where you borrow stock and immediately sell it, hoping to decrease the price of the stock so you can buy it back at a lower price, give it back to the original owner, and keep the profit.

Pump and dump is where the borrower sells the stock that was loaned to him and then spreads rumors that drive the company's stock down. The P&D investor then buys the stock back at a low price. They then return the stock.

They often build this scam by creating a network. They are able to control the members in their group. Leading a large group of people loyal to the guru to buy the stock, and then having them drop the stock all at the same time is one method of expediting the process.

These people pay to join an elite group, and then become pawns of the guru.

The pump and dump can damage a company's stock value. Many investors do not research stocks, they just see them drop quickly and panic, selling their stocks at a loss. The company loses. Innocent investors lose, and the people who follow the guru are not learning the 'secrets to success' they were promised. Instead they end up being so misled it becomes impossible for them to invest successfully.
About the Author
Mark Walters is a third generation entrepreneur and author. He offers free training and investing videos designed to speed you towards financial independence http://www.cashflowinstitute.com/videosignup.htm
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