Major Financial Schemes
def. A large-scale arranged plan designed to trick people out of their money, reassuring high returns or benefits but is dishonest and illegal.
Name of Scheme | Definition |
|---|---|
Ponzi scheme
Pyramid scheme
a financial scheme is which money from invested by new investors is returned to earlier investors, creating the illusion to the investors of a successful investment
an illegal investment scam in which people make money by engaging new participants to invest and bring more people to commit. When new money comes in, the money goes up to earlier members
Phishing schemes
a scheme in which scammers trick people into giving sensitive information, like passwords or bank info by pretending to be trustworthy
Investment scams
a dishonest scheme in which scammers trick people into investing money into fake, worthless investments, ensuring high returns, but money is stolen instead of invested.
Identity theft
a crime in which someone illegally uses another person's personal or financial information to steal money
Financial statement fraud
when a company purposely lies or shows false information on its financial reports to make the business look successful than what it is
Credit card fraud
the unauthorized use of someone else's credit card to withdraw money or purchase goods
Ponzi Schemes
def: an illegal financial scheme is which money from invested by new investors is returned to earlier investors, creating the illusion to the investors of a successful investment
famous examples:
-Charles Ponzi (1920): paid early investors deposits of previous investors. Ponzi scheme named after him. Made $9 million from 30,000 investors.
-Bernard Madoff (2008): largest Ponzi scheme in history, worth approximately $65 billion. sentenced to prison for 150 years.
​
-Allen Stanford (2009): scheme worth $7 billion, sentenced to 110 years in prison
How to avoid: Usually, Ponzi schemes sound too good to be true, promising high returns with little or no risk at all. To avoid Ponzi schemes, be aware of how much money, how much risk, and how much time the money will take to get back to you. If it sounds unbelievable, you should do in-depth research of the investment and the person selling it.
How they end: Ponzi schemes fall when there are no new investors to pay the earlier investors.
Pyramid Schemes
def: an illegal investment scam in which people make money by engaging new participants to invest and bring more people to commit. When new money comes in, the money goes up to earlier members, like a Ponzi scheme.
How they end: Pyramid schemes end when there are no new recruits or when the number of new drops; there would be no money to pay the earliest members.
How to avoid: Usually, promoters promise high returns. They stress and emphasize bringing new recruits to add to the scheme. Make sure to thoroughly research the promoter and the investment.
Famous example:
-Liberty Chart System, Ireland: Pyramid scheme in 2006 in Ireland, making money by recruiting new members.
Scheme took €20 million ($23 million) from investors.
-
Phishing Schemes
def: a scheme in which scammers trick people into giving sensitive information, like passwords or bank info by pretending to be trustworthy
Victims of Phishing:
Jeff Bezos (2018): Phone hacked, private information leaked by a video file sent from the account of Saudi Crown Prince.
Barbara Corcoran (Shark Tank): Victim of phishing scam in 2020, lost $400,000
How to avoid: Avoiding phishing schemes can be difficult, since the scammer trying to steal your information might seem legit. Here are some things you should look for to make sure your personal information is safe and you don't get phished:
-
Scammer offering coupons, refunds, or might prompt you to confirm personal or financial info
-
Emails that scammers send have links on them; be careful and don't click on the link if it seems phishy.
Be sure to make sure that all your private information on your device is secured and be sure to have a firewall security system.​
Why it's called phishing: Phishing is the combination of two words; fishing (scammers using "bait" to get information). The "ph" in phishing comes from the word "phreaking", meaning to manipulate device systems.
Investment scams
def: a dishonest scheme in which scammers trick people into investing money into fake, worthless investments, ensuring high returns, but money is stolen instead of invested.
How to avoid: Often, scammers promise high returns with hardly any risk. Scammers also put you under pressure to invest so that you won't think it through or research, while professionals give you time to think. The best way to avoid investment scams is to research thoroughly before investing
How common are investment scams?
In 2024, the Federal Trade Commission reported that 121,064 people had been pulled into an investment-related scam, totaling in a loss of around $5.8 billion
Identity Theft
def: a crime in which someone illegally uses another person's personal or financial information to steal money
How to make sure your identity isn't stolen: Check your credit card report and make sure that there is no unfamiliar activity and check for money transactions that you didn't make.
Why it's important: It is important to keep your account secure; by keeping your account secure, you can avoid major financial loss
Financial Statement Fraud
def: when a company purposely lies or shows false information on its financial reports to make the business look successful than what it is
famous example: Theranos, a health tech company.
The company claimed to be able to run many blood test but with a very little amount of blood. Company gained tons of money and claimed to be successful, luring in investors. Later, it was found that the tests were unreliable and that the company had been dishonest, saying they had tons of money
How to avoid: Look out for unusual profit growth, as well as fictious revenues and sales. If it seems impossible for a company to have so much revenue, it is most likely a financial statement fraud. It is extremely important to make sure the company that you invest in is honest to make sure money isn't lost.
Credit Card Fraud
def: the unauthorized use of someone else's credit card to withdraw money or purchase goods
Q: How common are credit card frauds?
​
​
A: -63% of U.S. credit card holders have lost money due to frauds
- In the U.S, $12.5 billion dollars collectively lost by victims of credit card frauds
.jpg)
