In recent years, scams have become a very relevant issue, attracting more and more attention. Fintech expert Sergey Kondratenko explains that fraudulent investment projects create high turbulence in the development of the industry. Their goal is quick enrichment at the expense of deceived investors. What is important to know about this type of fraud, and how can one protect oneself?

According to recent data published by the U.S. Federal Trade Commission in 2023, consumer losses due to fraud exceeded $10 billion in the U.S. alone. Analysts note that this figure is 14% higher than in 2022. Notably, losses due to illegal investment schemes amounted to over $4.6 billion, which is 21% more than the previous year. Moreover, in 2023, it was recorded that consumers lost more money through bank transfers and cryptocurrency operations.

Scams are projects that attract investments and then shut down, failing to fulfil obligations to investors. In the business realm, this term is associated with companies that violate collaboration terms and fail to pay investors.

Scam projects often use effective marketing strategies to attract customers and investors, thereby attracting huge financial resources. However, they close just as quickly as they appear, often not lasting even a year.

The profits of such projects are based on attracting new participants. Sergey Kondratenko believes that scams can be compared to a financial pyramid. While a classic network business earns income from selling real goods and services, income from a scam project depends on investments.

Sergey Kondratenko: Types and Signs of Scam Projects for Investors

The goal of any scam project is to quickly make as much money as possible from a trusting victim before they realise they have fallen into a trap.

Sergey Kondratenko explains that schemes of this fraud can be varied. According to him, it all depends on how inventive and experienced the fraudsters are with modern technologies. But in the end, it's always the same: deceived people and the vanished organisers of "profitable" projects.

Among the numerous types of investment fraud, the expert highlights the following:

Investment Scams: Actions aimed at deceiving investors to gain illegal benefits. With the internet and technology development, the number of fraud schemes has noticeably increased. Here are a few common types of investment scams:

1. Ponzi Schemes: These schemes involve paying returns to early investors using the funds invested by subsequent participants. Such schemes collapse when attracting enough new investors to maintain payments becomes impossible.
2. "Boiler Room" Operations: These illegal brokerage firms use aggressive and often deceptive sales methods to sell low-quality stocks at inflated prices. Typically, after the sale, the price of the stocks falls, and investors lose their money.
3. "Insider Information" Offers: Fraudsters claim they have exclusive information about some "guaranteed winning" investment proposition. Usually, these offers are false, and the information is fictitious.
4. Investment Seminars: Some events promise quick and high returns from investments in real estate or other assets. However, after a participation fee, the promised investment opportunities are unprofitable or non-existent.
5. Forex Scams: Fraudsters offer "reliable" trading systems or signals for trading on the foreign exchange market, which are in reality, ineffective or aimed at manipulating client accounts.
6. Binary Options: This type of fraud involves offers to invest in fast-passing "deals" where the return on investment is promised to be abnormally high. Most such platforms are unregulated and often associated with manipulative practices.

Kondratenko Sergey believes it is necessary always to be vigilant and attentive to such schemes to avoid falling into a fraudster's trap. Investors need to recognise the signs of scam projects to avoid financial losses. Here are a few key indicators to watch for:

●   Promises of high returns with minimal risks: Any offer that promises unusually high returns with supposedly no risks should be a red flag. In investments, high returns are always associated with high risks.

●   Vague or incomplete information about the project: Scam projects often do not provide full information about their activities, business models, or management teams. A lack of transparency is a serious red flag.

●   Pressure to invest money quickly: Fraudsters may insist that investors put money in as soon as possible, claiming that it is a unique opportunity that will soon disappear.

●   Difficulties in withdrawing funds: If a project creates obstacles for withdrawing invested funds or accrued profits, this is a clear sign of fraud.

●   Lack of registration or license: Legitimate investment platforms and projects are usually registered with the appropriate regulatory bodies. A lack of such registration or license should raise doubts.

●   Aggressive marketing campaign and promotional materials: Excessive use of marketing slogans promising easy money and glossy but uninformative promotional materials may indicate that the project is more focused on attracting capital than its effective use.

Attention to these signs can significantly reduce an investor's risk of encountering investment scams.

Sergey Kondratenko: Methods to Protect Against Investment Fraud

For personal protection against scam projects and the fraudsters who initiate them, Sergey Kondratenko advises adhering to the following recommendations:

1. Education and Awareness: The foundation of protection is knowing the basic investing principles and recognising typical fraud schemes. Regular training and staying informed about current investment information will enhance your ability to analyse offers critically.
2. Thorough Verification: Conduct a detailed check of the company or project before investing money. This includes analysing the company's history and reputation, reviewing it from other investors, and checking for licenses and registration with regulatory bodies. Also, check company names and domain names. Fraudsters often use brand-like domain names for their scams.
3. Using Verified Platforms: Invest through platforms and brokers that have a good reputation and are regulated by the appropriate financial bodies. This reduces the risk of encountering fraud and provides additional security guarantees for your funds.
4. Diversification of Investments: Do not put all your eggs in one basket. Distributing investments among different assets and sectors can reduce potential damage from a fraudulent operation.
5. Scepticism Towards "Urgent" Offers: Be especially cautious with investments that require an immediate decision or offer unrealistically high returns. Good investment opportunities rarely require haste.
6. Consultations with Professionals: Before making an investment decision, discuss it with a financial advisor, lawyer, or accountant. Professional evaluation can reveal potential risks that you may not have noticed.
7. Using Complex Passwords and Modern Security Technologies: Protect your investment and personal data using two-factor authentication, complex passwords, and other technological security measures.

By adhering to these methods, an investor can significantly reduce the risks of encountering investment fraud and can protect their finances from unscrupulous actions, believes Sergey Kondratenko.