Here's how to spot 4 common investment scams

Fast Company

30-05-2025

Recently, I was telling a friend about a marketing pitch I'd received that ended with a hard sell. I mentioned to my friend that I was still thinking about the pitch, which promised to generate leads for my freelancing business.
'How do you know it's not a scam?' she asked me.
That stopped me in my tracks. I'd recognized the hard sell as soon as it started—and had even anticipated it. I scheduled the call before another appointment so I'd have a good reason to hang up. But I'd still been tempted.
After a moment's thought, I was able to articulate how I knew I wasn't being scammed. This company is offering to do something real that I could certainly do myself—identify and contact potential clients. The company isn't scamming me; they're just using high-pressure sales techniques.
But my friend's question was an excellent reminder of how easy it is to fall victim to investment scams, whether you're investing in your business or your nest egg. That's why it's so important to understand what investment scams look like and how to recognize them.
Nothing new under the sun
While the methods scammers use to reach their targets are constantly changing and evolving, the actual scams have remained basically the same since the first prehistoric cave dweller received an email from a deposed Nigerian prince.
Even 'new' investment scams, like Sam Bankman-Fried's cryptocurrency fraud and whatever the hell NFTs claimed to do, prey on reliable human frailties that don't change—like assuming we don't need to understand an investment to profit from it. That's why most investment fraud is just repackaged versions of the same old scams.
These might include:
Ponzi schemes
A century ago, Boston con artist Charles Ponzi promised investors a 50% return within 45 days on an investment in international mail coupons. At the heart of every Ponzi scheme is the promise of high returns with little to no risk.
Of course, there wasn't really an investment. Instead, Ponzi continued to gather new investors, using their money to pay the 'returns' to the original investors. This is the other hallmark of a Ponzi scheme—the scammer must constantly bring on new investors to satisfy the older investors.
Ponzi's international mail coupon scheme fell apart when postal inspectors grew suspicious and his investors cashed out in large numbers. Ponzi schemes are inherently unstable and will inevitably disintegrate, either when investors cash out or when the scammer can no longer bring in new investors. But they continue to crop up, as Bernie Madoff reminded the world in 2008.
You can generally recognize a Ponzi scheme when it seems too good to be true, when the returns are too consistent, and when those returns arrive nearly overnight. Those all feel great, which is how Ponzi schemes override your logic. This is why it's always a good idea to embrace your financial paranoia.
Pump-and-dump schemes
The aim of a pump-and-dump scheme is to manipulate the price of a stock in order to profit. Under this scheme, scammers purchase shares of a company at a low price, then start aggressively promoting the stock—pumping it—to encourage investors to buy in.
This inflates the price of the stock. At that point, the scammers sell off their shares—dumping the stock—profiting off the unnaturally high price. This leaves the investors holding stocks they paid too much money for.
Typically, pump-and-dump schemes work with penny stocks on little-known exchanges and the scammers engage in high-pressure tactics to get you to invest now. If you've never heard of the stock or the exchange it's traded on, and the sales pitch veers from buttering you up ('A smart person like you wouldn't leave this opportunity behind!') to a hostage negotiation ('Come on, do the right thing!'), then you may be facing a pump-and-dump scheme.
Even if you have to do the Zoom-call equivalent of locking yourself in the bathroom and escaping out the window, get out of that meeting.
Pre-IPO investment scams
We all like to imagine where our bank account would be if we'd been one of the initial investors in Apple, which is why it's easy to fall victim to a pre-IPO investment scam.
These fraudulent offers give you the opportunity to purchase a stake in an emerging company before its initial public offering, or IPO, and they will often compare this startup to an established company so you'll get dollar signs in your eyes. Who wouldn't want to get in on the ground floor of the next Amazon?
Like pump-and-dump schemes, pre-IPO scams commonly include high-pressure sales tactics. The fraudsters want your money as quickly as possible and they don't want you to have time to think more deeply about their offer.
The other red flag for pre-IPO scams is how you are contacted. These scammers often rely on cold-calling potential investors and social media solicitations (because that's really how the biggest companies in the world raised their capital, right?). Taking a moment to think through the weirdness of getting contacted out of the blue for this once-in-a-lifetime opportunity! can help you resist the temptation to invest.
Affinity scams
Scammers know that you're likely to lower your guard among your community, so the bastards exploit that. Affinity scams target members of affiliated groups, such as religious communities, military members, or other tight-knit circles.
The fraudster either is a member of the group or poses as one. By earning the trust of a respected leader, who spreads the word about the investment scheme, the scammer is able to convince the group to invest.
These scams can be some of the most difficult to identify, since the scammer is exploiting the group's social capital for their own gain, especially if they have hoodwinked a well-regarded leader.
The best way to fight affinity scams is to ask a lot of questions. Legitimate investment professionals are happy to field questions and help you understand where your money is going. Scammers will pressure you to shut up—and will use group dynamics to enforce your silence. And that faux-friendly insistence on silence after you've asked questions is the best indicator of an affinity scam.
Know the signs of a scam
Knowing what scams exist doesn't make you immune to them. Madoff's victim list included a number of brilliant minds and tough cookies —which just proves that fraud can happen to anyone. Understanding the specific psychological tools scammers use can help you give yourself enough room to think before you act.
Urgency: There is no legitimate investment that can't wait 24 hours. You can feel confident about walking away from anyone who pressures you to make an immediate investment decision.
Ambiguity: Even if you are an investment noob, you need to understand what your money will be used for. If you're more confused after getting a string of smart-sounding gobbledygook or if you've been told not to worry your pretty little head, don't invest.
Guarantees: There are no guarantees in investing. Give the hairy eyeball to anyone who tells you differently.
Reaching out to you: Cold-calling is the last refuge of the desperate. (So says the writer who sometimes needs to find people to interview.) If someone is reaching out to you with an exciting opportunity, you need to wonder why.
Not today, scammer
Remembering that scamming techniques don't really change over time can help you protect yourself. That's because all scams, from Ponzi schemes to pump-and-dumps to pre-IPO investments to affinity scams, aim to get your emotion to override your logic.
Of course, it can be difficult to recognize when your lizard brain is driving. That's why you can train yourself to look for the classic signs of an investment scam, including urgency, ambiguity, guarantees, and cold-calling.
Before you sign on to any investment, do some basic research, starting with a simple Google search of the opportunity. The Federal Trade Commission and Securities and Exchange Commission provide information on common and emerging trends in investment scams, and scam victims will often share details of their experiences online. Just searching online for the investment may be enough to identify it as a scam.
If you're still not sure, consider whether you're feeling pressured to invest. Take at least 24 hours (but consider taking longer) to do more digging into the investment and talking with knowledgeable friends and colleagues before deciding.