“Ponzi” or pyramid schemes – Typically a promoter offers eye-popping returns from a vaguely described opportunity. Fancy or professional-looking documents and websites are no indication of a legitimate investment. Pyramid schemes are often spread by word of mouth through groups such as religious institutions, ethnic groups, or professional affiliations, frequently in an atmosphere of secrecy. The formula is simple: Promise high returns to investors while using their money to pay previous investors.
Pump and dump scams – Unethical individuals frequently “pump” up the value of low-priced, thinly traded securities through misleading marketing campaigns. When investors begin purchasing the securities at the inflated prices, they “dump” the stock, leaving most investors holding worthless shares. Watch out for pump and dump scams appearing on spam e-mail, in unsolicited faxes, or in internet chat forums.