The Guaranteed Return: A Common Investment Scam

August 30th, 2010 by admin Leave a reply »

One of the most common investment scams that has been proliferated throughout
communities around the United States during the last few years is the guaranteed
return. In this article, we will address the specifics of this scam and point out
how to avoid it. This single scam may cause more investor losses each year than
every other investment scam added together.

The Guaranteed Return

Bob is an incredible trader. In fact, he is so good that he is willing to give
you 2% per month on your investment. You give him $10k, $50k, $100k, and he will
guarantee a steady check each month of 2% of your principal investment. This is the
basic operation. Now the trader who is running the scam usually does one of three

- He never trades the money in a penny stock, stock fund, forex account, or what
ever the investment portfolio is designed to invest in. Instead he uses it to
finance a lavish and luxurious lifestyle of boats, cars, houses, vacations,

- He deposits the money into an account and trades it, but he also withdraws
money whenever he wants in order to finance that luxurious lifestyle.

- He deposits all the money in a trading account and trades it. He never does
take any out to finance a luxurious lifestyle, but he continually loses money as a
trader. Instead of being forthright about his losses, he keeps losing and losing
until there is no money left in the account.

One of these three scenarios plays out in this scam. The most common is number
1, although number 2 and 3 do happen. The trader perpetuates the scam by continuing
recruiting new investors, but this is where the scam gets very difficult to uncover.
Usually the trader does not do any formal advertisement or marketing. These types
of scams generally perpetuate through word of mouth and circles of trust. For
example, they will often occur in church, civic, and social circles, and because
they perpetuate by word of mouth, new investors rarely question the legitimacy of
the investment operation.

The math works as follows. If a trader has $1 million under ?management,? and he
is promising a guaranteed return of 2% each month, then he only has to pay out
$20,000 each month. That means that in a year he only has to pay out $240,000.
That leaves him with a lot of extra money to spend on whatever he wants. And then,
the more investors he brings in, the longer he can perpetuate the scam. Eventually
everything falls apart when enough investors call up for their principal at the same
time. Then, the trader will not have enough money to pay back investors, and the
entire fraudulent operation falls apart, and investors realize they have been bilked
out of their money.

The scams often tend to fall apart during times of recession and economic
uncertainty because many investors will call for their capital in order to increase
their liquid holdings. When these investment scams are exposed, investors rarely
get any capital back, and if they do, it is generally pennies on the dollar.

How To Avoid The Guaranteed Return Scam

Never invest with anyone that guarantees a return no matter how great it sounds.
It is impossible to guarantee a return in financial markets.

Never invest with a ?trader? that is not fully registered with Regulatroy
official, such as the SEC
of NFA.

These two steps alone will dramatically decrease your chances of falling victim
to the Guaranteed Return Scam. If you believe you may be in a scam at the moment,
the safest thing to do is contact your local FBI office and an attorney and ask them
for advice.

Currency Trading

Market Forex offers investors a complete and direct access to the
worldwide forex currency trading markets, No need to download software, forms,
simply signup and start trading.

Please share with other stock traders!
  • Twitter
  • Facebook
  • Digg
  • StumbleUpon
  • MisterWong
  • Yahoo! Buzz
  • Google Bookmarks
  • Fark
  • Faves
  • Mixx
  • Reddit
  • Technorati
  • Tipd
  • Tumblr
  • Diigo
  • HelloTxt
  • MySpace
  • NewsVine
  • BlinkList

1 comment

  1. Forex Forum says:

    I have always been interested in Day Trading to generate some profits on a part-time basis. However, due to high risks at stake, I have not had the courage to take the plunge. I have read some excellent reviews on EA trading, I think I will try it whilst I learn the ropes of how to actually do Day Trading on my own.