Common Scams & Schemes

By Elsie Dudukovich0 Comments

“There’s a sucker born every minute,” these words come from the great P.T. Barnum and while we can laugh or smile knowingly, we don’t want them to ever apply to us.  As an investor, you do your best to be on your toes and watch out for schemers and scammers.  Being aware of the types of fraud specifically designed to target investors is one component of being a wise investor.

Of course, like computer viruses, new schemes and scams pop up from con artists and rip-off masters every day. Equity Trust Company believes in clients’ seeking out education on the most common fraud schemes and scams is a great step towards protecting their investments and financial future.  Here are two of the most common scams Equity Trust Company wants its clients to be aware of:

Ponzi Schemes

  • These schemes first got their name in 1920 after Charles Ponzi, but he did not create this type of fraud.  Two novels from Charles Dickens in 1844 and 1857 described the operation of this type of scam.
  • While the operation of the scheme can be complex, the concept is fairly simple.
  • The first round of investors is paid by the funds of the next group of investors, with the perpetrator taking a cut of funds for himself.
  • This cycle continues and, if the criminals involved are not stopped by the authorities, the scheme will eventually collapse upon itself.

Pyramid Schemes

  • This scam is similar in structure to a Ponzi scheme, but it works by convincing people to invest into a distributorship or franchise.
  • The rip-off artist’s scheme recruits investors by convincing them they are getting in on the ground floor of the next big thing.
  • In time the focus shifts to have each investor finding other investors and less on the actual product or service the entity offers.
  • This is a scam because it’s not mathematically possible for everyone to buy into the franchise or distributorship to ever see gains.
Equity Trust Company wants to see its clients make tax-free wealth for their future, not line the pockets of scam artists and rip-off masters.  Remember, if something is too good to be true it probably is.  It is in your best interest to have a qualified third party review any investment you feel uncomfortable about or aren’t sure about the details of how the investment works.