By Gene Balas, CFA®
Investment Strategist
Scams – And How to Avoid Falling for Them
Investment scams raked in more than $4.6 billion—more than any other category – in 2023. That amount represents a 21% increase over 2022. The second highest reported loss amount came from imposter scams, with losses of nearly $2.7 billion reported.
And in 2023, consumers reported losing more money to bank transfers and cryptocurrency than all other methods combined. These data are from the Federal Trade Commission’s Consumer Sentinel Network, the tool the FTC uses to track scam reports. (The FTC compiles data on scammers but doesn’t prosecute scammers itself; it refers cases to the FBI.)
There are several ways through which scammers meet their victims: email being the most common, followed by phone calls and text messages. Social media – including dating websites – are also popular with scammers. Scams starting on social media accounted for the highest total losses at $1.4 billion. But scams that started by a phone call caused the highest per-person loss ($1,480 average loss).
While the numbers of investment scams and imposter scams don’t overlap based on the methodology of the data collection, sometimes investment scams begin as imposter scams. Some victims have lost hundreds of thousands of dollars, and the FTC reports the median (which is lower than the average) loss due to investment scams is $7,768.
How? The newfound “friend” or supposed romantic interest that a victim might encounter on social media or a dating website might seem like a trustworthy person, and the relationship might progress to include discussions of investment topics. Or possibly someone emails, calls, or texts the victim with an enticing investment opportunity, pretending to be a knowledgeable investor or even a trusted professional. Perhaps the scammer boasts of their investment earnings, often in cryptocurrencies or maybe even in stocks or other investments.
Investments in cryptocurrencies, because of their reputation for having delivered high (but very volatile) gains in recent years and because they are not as widely understood as are other investments, are in particular a popular ruse for scammers. A victim may be eager to ask the scammer to show them how they too can earn such amazing “returns”.
The scammer often might not ask the victim for money at all. Instead – after fostering a relationship – they suggest that the victim “invest” using an app (including ones that are downloaded from Apple’s or Google’s app stores) but ones in which the scammer controls the behind-the-scenes operations, not a legitimate investment company.
The victim “invests” money into the app, using the instructions the scammer provides on how to set up the account and where to send money. The app even gives information on how much money was earned or lost, giving the victim the illusion of seeing a “real” portfolio that is increasing in value. The victim may be inspired by the supposed gains of their investment, and send in even more money.
The account appears to continue to grow in value – until the victim wants to actually withdraw funds. The scammers may then even attempt to inflict one more attempt at fraud by asking for funds to pay a “tax bill” when the victim seeks to withdraw funds from the app. After unsuccessfully being able to withdraw their funds is when the victim realizes they were scammed, and by then, the scammer is long gone – along with what may be a sizeable amount of money.
So how can you avoid being the victim of a scam? By now, many, if not most of us, know to avoid clicking on links without at least some degree of suspicion (and to hover over links to make sure the URL of the website is, in fact, the legitimate one for the site we intend to visit). We also know to recognize emails, texts, or phone calls saying the sender of the message or caller is from the IRS are scams (the IRS contacts people only by U.S. postal mail, and will not ask for money except through designated channels).
And we know that “alerts” saying they are from a credit card company asking us to click a link to check suspicious activity are, themselves, suspicious, as credit card companies will only tell you to visit the website or call the phone number found on the back of the credit card to learn more, not click a link. We also know not to trust any notice asking for our bank account information, such as to collect “winnings” from a sweepstakes or other prize.
But when it comes to encountering people who seek to build our trust, we can be more vulnerable to scams. Humans naturally want to trust other people – especially people who seem like us. Social media, however, is a fertile area for scammers to find information about someone to then use to build rapport with the victim in a subsequent interaction, perhaps saying they are from the same town the victim is from, or who used to work at the same company, or who shares a similar hobby, etc.
A scammer can thus use social media to do their homework on a potential victim before contacting them, perhaps via a phone call, email, or a text message, if not through social media itself. As often said, people should be very careful what they post on social media, including dating sites, but perhaps more important, people should simply remember the degree of information about themselves that is publicly available on the internet, whether in social media channels or from a simple internet search. When a stranger seeks to build rapport with a victim, it is imperative to remember that the pretenses used to establish a relationship could be entirely false.
Overall, while the blanket advice I give my elderly mother, “Trust no one”, is perhaps overly strong, we may all benefit from being perhaps just a little bit more suspicious, cautious, or at least thoughtful, in our daily interactions with people. Things are not always as they seem, after all.
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