There are several investment scams that you may be exposed to. The most common scams include Pyramid schemes and Ponzi schemes, Pump-and-dump, and the Property scam.
A pyramid scheme is a business model whereby you need to recruit other members into the business to receive payments or services. This type of investment promises big returns in a very short time. In truth, the money that you receive for recruiting new members get paid as “dividends”, and it seems as though your money has grown; however, the business simply took someone else’s money and gave it to you.
A Ponzi scheme is similar to a pyramid scheme; however, you don’t need to recruit new members. The person who sets up the business is responsible for recruiting new investors, who will bring money into the business as they join. When you are paid your return, you are being paid the money that the investors brought in, rather than profits from legitimate business activity. The business will close when there are not enough new members to keep paying the older members.
Pump-and-dump: When a person purchases shares in a relatively unknown business at a low price, they spread fake news and information about the business to inflate the business’s value and make it look like an attractive investment opportunity. The investors will then buy these shares at a higher price as they believe they are buying shares from a good business. Once all these shares are bought, the person who started the scam, runs away with everyone’s money, and the investors are left with shares of no real value.