What Is Investment Fraud?
Investment fraud happens when someone lies or tricks others into putting their money into fake or misleading opportunities. The goal is usually to steal that money. It can take many forms—from fake crypto schemes to real-sounding companies that don’t actually do anything. Anyone, regardless of experience or background, can become a target.
One Example: Pig-Butchering
A well-known scam called pig-butchering is a good example. In this type of fraud, scammers build fake relationships—often romantic or friendly—online. Once trust is built, the scammer slowly convinces the victim to invest money into what looks like a real opportunity, often involving crypto assets like Tether. The victim keeps “investing” more and more until suddenly, the scammer disappears with everything. Journalist Zeke Faux covered this in-depth, and it was recently featured on Last Week Tonight with John Oliver.
Pig-butchering is just one type. Let’s take a look at common red flags you should know about so you can protect yourself and your loved ones.
Common Warning Signs of Investment Fraud
Investment fraud can be financially and emotionally devastating. But by recognizing a few key red flags, you can greatly reduce your chances of falling for it.
Here are some signs to watch out for:
Unrealistic Returns
If someone promises unusually high profits with little or no risk, be cautious. For example, Bernie Madoff promised steady, high returns for years—and it was all a lie. More recently, Celsius founder Alex Mashinsky faced similar allegations. Real investments go up and down.
Pressure to Act Fast
Scammers often push you to “act now,” trying to rush your decision. Legitimate financial opportunities give you time to think, do your research, and get advice.
Guaranteed Returns
There’s no such thing as a guaranteed profit in investing. If someone says the investment is “risk-free,” that’s a major red flag.
Missing or Vague Paperwork
Trustworthy investments come with clear, thorough documents. If you’re not getting any paperwork or it doesn’t make sense, walk away.
Overly Complicated
If an investment sounds so complex you can’t explain it to a friend, be cautious. Scammers often use big words and complex ideas to confuse you and hide the scam.
Unregistered Investments
Before you invest, check if both the opportunity and the person offering it are registered with the SEC or your state securities regulator. You can look them up online for free.
Unlicensed People
Anyone giving investment advice or selling securities must have the proper licenses. If someone isn’t licensed, they shouldn’t be handling your money.
“Exclusive” or Secret Offers
If you’re told this opportunity is “just for you” or not available to the public, be wary. Fraudsters love using exclusivity to build false trust or urgency.
Trouble Withdrawing Money
Can’t get your money back? That’s a huge red flag. Legitimate platforms or investments allow withdrawals. Think of FTX and Celsius — when people couldn’t access their money, it was a clear warning sign.
Affinity Fraud
This happens when scammers target people through social circles, religious groups, or cultural communities. Pig-butchering often uses this tactic. Just because someone you know recommends it doesn’t mean it’s safe—scammers use trust against you.
When Are People Most Vulnerable?
Even smart people can fall for scams when the timing or circumstances make them vulnerable. Here are some situations where fraud hits hardest:
During Tough Economic Times
When money is tight or the economy is shaky, people may be more open to risky opportunities that promise fast gains. Scammers know this.
After Big News Events
Major news stories (like wars, elections, or tech breakthroughs) create uncertainty. Scammers will twist the headlines into their pitch, hoping to sound timely or relevant.
During Market Booms
When crypto, stocks, or real estate are booming, people often get caught up in the hype and fear of missing out. That’s when scammers offer fake opportunities that promise “easy money.”
Looking for Alternative Investments
Scammers love targeting people seeking something different—like crypto, NFTs, or private deals. They’ll claim it’s “the next big thing” and push hard for you to invest before you miss out.
Under Financial Pressure
If you’re behind on bills, out of work, or dealing with debt, you may be more likely to take risks. Scammers prey on people in distress by offering fake solutions.
Limited Knowledge of Finance
If you don’t have a strong understanding of how investments work, it’s easier to fall for buzzwords, charts, or fake returns. The good news? You don’t have to be an expert—just ask questions and take your time.
Feeling Lonely or Vulnerable
Grief, isolation, or emotional distress can cloud your judgment. This is why so many scams start with conversations on dating apps, in online groups, or even over text. They’re designed to feel personal and caring—until your money is gone.
Protecting Yourself (and Others)
The best way to protect yourself is to slow down, stay skeptical, and check everything. That means:
- Asking questions you don’t feel shy about
- Requesting documentation
- Checking if people are licensed
- Consulting someone you trust before making a decision
If something doesn’t feel right—pause. A good opportunity will still be there tomorrow.
And if you believe you or someone you know may be the target of investment fraud, report it to regulators like the SEC, FTC, or your state’s attorney general. You might just save someone else by speaking up.
Don’t miss the guide for caring parents.