Since diving into Bitcoin as the basis for potential scams, I’ve found myself drawn deeper into the mire of investment scams, which seem to be enjoying a resurgence thanks to online banking and investment.
We all need to make wise investments and as I
return to this topic, the same principles for deception and protection remain
valid – but are quickly ignored or forgotten in the bright lights of temptation
and supposed opportunity.
Phantom Promises: The Case Of Bernie Madoff
A couple of decades ago, investment guru Bernie Madoff attracted billions of dollars from investors thanks to his remarkable ability to predict the market and build enormous profits for his clients.
On paper, his investment fund was increasing at
a rate that dwarfed his contemporaries and while a few people cashed out from
time to time, most simply reinvested and continued to watch their money
apparently grow according to Madoff’s claims.
In fact, those claims were almost entirely false,
based on lies that had paid off for many years.
While people believed their money was safely
held somewhere, it was in fact being sent directly to Bernie’s personal
So while Madoff could pay out what a few
investors supposedly earned; when too many investors needed to withdraw, his
deception was soon exposed and it became apparent that there was no real fund at
all and Bernie had simply been lying all along.
That’s a pretty simplified version of what
happened with Madoff but it’s enough to understand how his scam works.
Imagine taking a hundred bucks a year from a
hundred people and telling all of them they made 10 percent on their
Since that’s a pretty good return, most would
re-invest for another year, and you could sell many of them on a 10-year
investment with slightly better returns.
If one or two cash out, you have to return a
couple of hundred bucks, but you still have close to $10,000 from the first
After five years you’d have around $50,000 and
probably a lot more since many other people would be eager to sign up for your
The problem, of course, is that while you have $50,000
in your account from all these suckers, those suckers believe you have more
than this since each of them has been apparently earning 10 percent every year;
so if too many of those “investors” decide to cash out – just like Bernie –
you’re almost certain to get caught.
But what if there was a way to keep people’s
money and make them believe they simply got unlucky?
Bogus Brokers In 2021
When investing in any legitimate stocks or
shares, it’s important to diversify – to spread your money around and to limit
the chances of losing value on your investment.
A way to do this is to buy relatively solid
shares like Apple and Google or invest in FTSE or NASDAQ where there’s a
historic upward trend and maybe set a little aside for crypto or riskier bets
that might “hit” but could also “tank” without exposing you financially.
In other words, be sensible.
But along comes a spider, dressed as a
stockbroker and if you fall into his or her web of lies, you might expose
yourself to an extremely simple scam that has become remarkably easy to pull
It works like this:
A potential investor is told they can make a
sizeable profit by trusting their money to a broker who is working outside of
the normal system.
Through third parties, he has successfully
increased past investments by 20 percent or more over short periods of time and
is about to begin another round of investments.
So having heard the story and had it verified by
other people – perhaps friends or associates who you trust – you put a little
money in and sure enough, you make a nice little profit.
The question now is: do you cash out or
re-invest and add even more of your own money?
Since your goal is to make your money work for
you, the chances are good you add more and join the next round of investments
and will probably tell other friends how well you did the first time, thereby
increasing the pool of potential victims.
The name of the game here is to build a
portfolio of suckers who all believe they are making money when all of it is
ONLY on paper but unlike Bernie Madoff, who just kept going until the scam
collapsed under its own weight, smart scammers know when to tank the fund with
a supposed “bad investment” that will cost investors half or more of their
At the end of a period of investment, the
scammer simply identifies a number of stocks that either collapse or lose most
of their value then claim these investments cost their clients a large chunk of
A pure hustler would then run with all of their
money while a smarter con artist would return half – maybe even more – and
explain that this round of investment was simply an outlier and a victim to the
ups and downs of the stock market.
Needless to say, the bogus broker only has to
hold his victims’ money in an account then pay a percentage back after claiming
to have lost the balance on the market and create fake paperwork to that
More sophisticated scammers – perhaps licensed stockbrokers like Madoff – might invest in genuine blue-chip stocks to build a legitimate-seeming fund then manipulate records to make it seem they lost a large amount on tanked shares.
Another method is to use legitimate investments
to pump and dump worthless shares but claim the share price tanked before
the crooked broker could sell, when in actual fact he or she manipulated the
price from the start and kept the profits after selling at the top price.
There are many checks and balances to supposedly
stop these practices in “legitimate” firms, but rogue traders are not as
uncommon as many would like to believe and the industry will often rush to hide
any wrongdoing by brushing a lot of bad behaviour under their own carpet.
Selling Lies On Social Media
The type of rank scam I’m describing here is
quite simplistic but made more possible by the internet and by the many ways
stocks and shares can be purchased.
The kind of crooks who seem to be mimicking
Madoff’s methods have evolved those methods to avoid the inevitable and are not
necessarily real brokers but concocted characters who convince people they have
an angle or a method that seems to work according to evidence that is entirely
Other scammers turn out to be unlicensed brokers
operating through unregulated investments firms that appear to be legitimate
but operate outside the financial conduct authority (in the UK).
These characters use Instagram, WhatsApp and
social media to attract the unwary with images of obvious wealth or publicity
stunts but in the end, life savings are lost and while the trail leads to
unregulated investment, the reality of those investments is something I would
be extremely suspicious of.
How deeply anyone can investigate the trail of
money when it goes outside of licensed and monitored methods is worth examining
but in some cases a few simple documents can cool off the marks.
For laymen, a PDF file or a webpage with
imaginary results can work wonders on the uninitiated and if a hustler has the
time and patience to cultivate a large number of small investors with the means
to invest more, all he or she has to do is hold their money or invest it simply
while inflating supposed returns until there’s enough re-investment and
additional investment to pull a fake tank on the fund and keep the money that
was supposedly lost.
By choosing the right marks and playing them
correctly, many suckers will simply continue to invest in the belief that the
tank was just “one of those things” and hope for better results in the future.
Played correctly, almost no one will properly
examine increasingly complex records of investments and unless they pass those
record to a professional, they might never realise the truth.
Even if someone does ring the alarm and spot the
deception, many of these Instagram “brokers” are complete fabrications or
hiding behind multiple identities and can quickly vanish with every penny they
have supposedly invested!
In other words – they are figments of their own imagination, selling a lie to people who should certainly know better but are vulnerable to their own lack of knowledge.
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