Two Common Investment Frauds That Every Investor Should Remain Aware of
If you want to protect your investments from frauds and scams then it will be very important to consult an experienced and certified financial adviser. Right guidance from financial adviser will ensure that fraudsters or scammers are not able to lure you into taking wrong investment decisions. To delve deeper into this topic we will analyze some of the investment frauds and scams you need to be wary of.
Common Investment Frauds and Scams
Two common types of scams you need to know about include the following:
- Ponzi scheme
- Equity Milling
This is a type of fraud in which an existing investor is provided good returns out of funds fraudster receives from other investors who are getting enrolled in the scheme. Some of the common characteristics of a ponzi scheme are:
- Lack of existence of real financial investments or any type of assets.
- False claims regarding existence of investments.
The Ponzi bubble tends to burst soon enough when rate at which people join the scheme significantly slows down and scammer is not able to pay promised returns as well as pay off investors who want to cash out.
A financial adviser can help you recognize another investment fraud which is known as equity milling. Let us look at details of what it is. Here under valued properties are singled out by promoters and investors are lured into purchasing them. After that a fraudulent appraisal is done to show higher value for the property. Such higher value is utilized for getting a loan and after that it is sold to someone else. As such, investor is able to receive (mill) equity in the form of difference between lower purchase price of property and higher value appraisal.
Unscrupulous promoters offer this kind of equity milling as one type of investment program as well as an excellent technique to finance some other investment option.
Let us look at another example of how equity milling is utilized by fraudsters.
It is possible that someone utilizes equity of a home to borrow money and this money is used for purchasing a car. However, the borrowed amount is usually higher in comparison to what a car would cost. As such, the difference between the two is used for the purpose of making an investment. In equity milling a promoter tries to lure investor by offering a rate of return which is lot more in comparison to amount you will have to pay as interest for loan you will be taking. Concerns of fraud stem from the fact that oftentimes required disclosure documents are missing in such transactions. Moreover, promoters also try to mislead or misrepresent information about risks you will have to bear.
A Final Note
From above details it is quite clear that there are several different kinds of frauds that you need to remain aware of. By consulting an experienced financial adviser you can get right advice and recognize frauds before becoming a victim of such investment frauds.