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Investment Insights, LLC

How to Spot a Scam

Hal Masover, CRPC®

I was lifting weights in the gym.  A friend who knows what I do started talking with me about some bonds he was representing.  They paid 100% interest per year and were backed by real estate.  A few of you may be laughing, but a few others of you may be asking, really?  Where can I get that?

I reacted in a pretty negative and skeptical fashion to my friend.  His response was something about how I was just doing business as usual and was a fool who was happy with the crumbs that the financial elites let me have. 

He went on to explain that this is how billionaires invest.  His bonds were invested in by billionaires, and backed by real estate.  I know a bit about real estate and I know that 100% plus returns per year were quite unusual.  Apparently the real estate was in some Caribbean nation, I don’t remember which.  It was all very secure and he repeated something about billionaires. 

If you have been reading my columns or know me you already know whether I bought any of these bonds.  I did not.  In fact, I didn’t even spend time investigating them.  I didn’t have to.  I asked one simple question that he didn’t have a good answer to.  Not his fault really because there was not good answer to this question.  If billionaires were so confident in these bonds that they were buying them up, why were there any left for small people like you and me?  Why do they need us?  And need us so badly that they have to pay an obscene amount of interest?

The end of this story is sad in many ways.  People bought the bonds and paid for their gullibility by losing all the money they invested.  The bonds were not backed by real estate.  It was some money laundering scheme involving conflict diamonds from Africa.  My friend that was representing these bonds went to prison for the misrepresentation, among other things.  I can’t think of a single good thing that came from this story.

And you might think you’d never fall for such a scam.  Afterall, 100% per year in interest is preposterous.  But what about something much closer to normal? 

I recently read about a Desert Storm veteran who was on disability.  All he had in savings was a $100,000 settlement.  For whatever reason he didn’t trust traditional investments.  But he met a man that had an investment that guaranteed 12% per year return on your investment.  He liked the man and trusted him and the 12% per year guaranteed sounded really good.  You are probably guessing the sad end of this story.  The man offering the investments was recently sentenced to prison.  The veteran’s $100,000 is gone.  It was a Ponzi scheme. 

Schemes like these two keep happening because there’s always people looking to make money quick on some sure thing.  This is how Bernie Madoff got people to invest.  It wasn’t just that he seemed so credible.  It was that people invested with him were seeing 11% returns on average, year after year.  In the end it turned out to be a Ponzi scheme.  Most of the money was stolen.  He was sending people fraudulent statements. 

But the common theme of all of these schemes is that they appeal to your greed and to your FOMO – Fear Of Missing Out. 

Another friend asked for my help recently.  He found someone on Instagram that was promoting a course in how to get rich trading Bitcoin.  He bought the course.  (Side note -  Anyone selling courses in how to get rich trading probably isn’t rich.)  They are trying to get rich by appealing to your greed, and instead of doing an illegal scheme of some kind, they are selling courses.  They are selling those courses because they weren’t able to get rich trading.  If they had, they wouldn’t need to sell you a course!  Sigh.  But when people get blinded by greed, they don’t ask questions.

So my friend bought the course and studied hard and unsurprisingly, couldn’t get it to work.  But then he found out that he could invest with someone else that was making a killing in Bitcoin.  So he sent $500 off to someone he didn’t know in another country.  $500 may not sound like much, but it was his entire savings. 

Soon he started to receive statements that showed his account was soaring.  It was working!  The $500 had become $7,000 in just a few months.  This was fantastic so of course they encouraged him to send more money.  But my friend didn’t have more money and had more bills that he couldn’t pay.  So he asked for his $7,000. 

They said OK, but needed to verify that it was really him.  And they charged a fee for that.  For $50 they would verify his account and send the money.  By the time my friend asked for help, he had sent the $50 for verification and they were reporting difficulties that required more money to clear up the matter. 

My friend was obviously scammed.  He got scammed though - and this is important - because they successfully appealed to his greed. 

Different versions of this story have been told for centuries and are being written as you read this. 

But how do you avoid them? 

Be skeptical of offers of outsized returns.  There is always a reason for those extraordinary returns and most of the reasons are bad. 

If you’re having a hard time finding any bad reasons, maybe, just maybe, you have one of those rare circumstances that’s legitimate.  But before you do anything, get advice. 

If you wait until after you’ve sent your money off, it may be too late. 

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, LLC is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

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