How To Spot a Scam

Photo by Annie Spratt at Unsplash

I was lifting weights in the gym when a friend who knows what I do started talking with me about some bonds he was representing. They paid 100 percent interest per year and were backed by real estate. A few of you may be laughing now, but a few others may be asking, where can I get that?

I reacted in a pretty skeptical fashion to my friend. His response was something about how I was a fool who was happy with the crumbs that the financial elites let me have.

He went on to explain that this is how billionaires invest. Billionaires were investing in these bonds, which were backed by real estate. I know a bit about real estate, and I know that 100 percent-plus returns per year are quite unusual. Apparently, the real estate was in some Caribbean nation. It was all very secure and he repeated something about billionaires.

If you have been reading my columns or know me, you already know if I bought any of these bonds. I did not. In fact, I didn’t even spend time investigating them. I didn’t have to. I asked one simple question: If billionaires were so confident in these bonds that they were buying them up, why were there any left for small people like you and me? Why do they need us—and need us so badly that they have to pay an obscene amount of interest?

The end of this story is sad in many ways. People bought the bonds and paid for their gullibility by losing all the money they invested. The bonds were not backed by real estate. It was a money-laundering scheme involving conflict diamonds from Africa. My friend who was representing these bonds went to prison for the misrepresentation, among other things. I can’t think of a single good thing that came from this story.

And you might think that you’d never fall for such a scam. After all, 100 percent per year in interest is preposterous. But what about something much closer to normal?

I recently read about a Desert Storm veteran who was on disability. All he had in savings was a $100,000 settlement. For whatever reason, he didn’t trust traditional investments. But he met a man who had an investment that guaranteed 12 percent per year return. He liked the man and trusted him, and the 12 percent per year sounded really good.

You are probably guessing the sad end of this story. The man offering the investments was recently sentenced to prison. The veteran’s $100,000 is gone. It was a Ponzi scheme.

Schemes like these two keep happening because there are always people looking to make quick money on a sure thing. This is how Bernie Madoff got people to invest. It wasn’t just that he seemed so credible—it was that the people who invested with him were seeing 11 percent returns on average, year after year. In the end, it turned out to be a Ponzi scheme. Most of the money was stolen. He was sending people fraudulent statements.

The common theme of all of these schemes is that they appeal to your greed and to your FOMO—fear of missing out.

Another friend asked for my help recently. He found someone on Instagram who was promoting a course in how to get rich trading Bitcoin. He bought the course. (Side note: Anyone selling courses in how to get rich trading probably isn’t rich. They are selling those courses because they weren’t able to get rich trading.)

So my friend bought the course, studied hard, and couldn’t get it to work. But then he found out that he could invest with someone else who was making a killing in Bitcoin. So he sent $500 to someone he didn’t know in another country. That $500 was his entire savings.

Soon he started to receive statements that showed his account was soaring. It was working! The $500 had become $7,000 in just a few months. This was fantastic, so of course they encouraged him to send more money. But my friend didn’t have more money and had bills that he couldn’t pay. So he asked for his $7,000.

The response? We need to verify that it’s really you. For $50 we can verify your account and send your money. My friend sent the $50 for verification, and they were reporting difficulties that needed more money to clear up.

Obviously, he was scammed, but—and this is important—he got scammed because they successfully appealed to his greed.

Different versions of this story have been told for centuries and are being written as you read this.

How do you avoid them?

Be skeptical of offers of outsized returns. There is always a reason for those extraordinary returns and most of the reasons are bad. But before you do anything, get advice. If you wait until after you’ve sent your money off, it may be too late.


Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, LLC is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

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