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American Greed: Scam Investment Opportunities and How to Spot Them

Posted by Amanda Butler Schley | Sep 13, 2021 | 0 Comments

Small business owners face a lot of challenges in today's world. Our firm has seen many successful clients being approached by unscrupulous people selling scam investment strategies or businesses.  The most recent involve trucking companies and amazon stores.  Inevitably as part of the scam, the person pitching the investment is usually aware that the victim has come into a large amount of money or has become successful in their own small business. They use this knowledge to their advantage to pitch these “easy money” ideas which are either outright scams or business concepts with no legs that lead to thousands in investment and little to no returns with LOTS of excuses along the way. We thought we would take this opportunity to share some common red flags everyone should be aware of when they are thinking about investing in a new business venture, loaning another business money, or purchasing a new business.

  1. EXTREME OR UNFOUNDED URGENCY

Often the pitch for a new investment opportunity will claim that the opportunity will be gone quickly or very soon. Scammers like to create a false sense of urgency. This false sense of urgency tricks investors into turning over their money right away without proper research. The scammers may trick investors by saying a certain “opportunity” is limited in time or by the number of participants. These scammers urge you to get in on the “opportunity” right now or they create a false deadline dependent on an event that is happening very soon. If a person does not let you properly research and plan the details of an agreement because it's got to be done super-fast, then you should not feel bad about slowing down or ending the agreement altogether. Be cautious if they are asking you to deliver something in an unreasonably short timeframe or under extremely strict conditions. When you're evaluating a potential business partner, it's important to take time to get to know them, how they work, and learn more about their background.

  1. A GUARANTEED RETURN ON INVESTMENT

Run – don't walk – away from any person who says they can guarantee specific revenues. Beware of promises of high profits, especially if they are “guaranteed.” Scammers will often tempt unsuspecting small business owners by promising big revenues and returns in a short amount of time. These promises are commonly known as “get rich quick” schemes. In any business relationship it is important to discuss numbers and figures. However, if anyone is promising big numbers and short timetables then it is time to be cautious. These guaranteed numbers are often incorrect, inflated, or completely fabricated. Be wary, if someone is making an offer that sounds too good to be true then it likely is.

  1. YOU ARE EXPECTED TO PROVIDE ALL THE MONEY, RESOURCES, OR TIME

Scammers will devise a way or invent a reason to extract resources from you. Legitimate companies never require someone to pay money upfront during a business agreement or transaction. Scammers often instruct victims to send money by wire transfer or reloadable money packs. Sending money in these forms is the same as sending cash—it is nearly untraceable, and once the money is sent, it generally gone for good. You should never send money or provide personal information to unknown or unfamiliar people or business entities. Scammers might also ask you to take a loan to cover an expense or pay for additional business costs. They may ask to pay for a certification or pressure you to provide additional labor or pay for additional labor costs. These people seek to divide you from your resources that they are after. Make sure you understand exactly where your resources are being allocated before you offer them up to anyone else.

  1. THEY INSIST ON USING UNTRACEABLE PAYMENT METHODS

Most legitimate companies have some form of an official company checking or credit accounts. If someone insists on paying you with a personal credit card, money order, cash, or any other payment instead of an official company check, then it is likely they are trying to scam you. Additionally, scammers can create counterfeit checks and money orders that look remarkably authentic. After your financial institution cashes a check or money order, it generally has up to two weeks to reverse the transaction. However, if the check or money order ultimately ends up being counterfeit, your financial institution will probably hold you responsible. Scammers use untraceable payment methods to make sure you are left footing the bill. Be on the lookout for anyone who wants to use these untraceable payment methods like wire transfers, reloadable cards, or gift cards that are nearly impossible to reverse or track.

  1. UNLICENSED BUSINESS BROKERS AND INVESTMENT PROFESSIONALS

Many investment scams involve unlicensed individuals selling unregistered securities—ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments.  If an unlicensed broker is attempting to get you to invest money in another business, this is a red flag – as it is against the law.  There are a number of business professionals who simply do not understand the legal rules around what it takes to advertise businesses for sale and what types of licenses and credentials are required. If they are unlicensed and trying to sell you a business or an investment – run, don't walk away from their offers.  Often times these people will have gained your trust and respect before pitching the business idea.  That does not make a background check any less appropriate.

Ways to avoid fraud:

  • Ask questions.  If the offer seems “too good to be true,” it probably is.
  • Research every investment opportunity thoroughly before you invest.  Make sure you understand your investment. If the investment appears complicated or if it cannot be properly explained, you may not want to hand over your money.
  • Check out the credentials and conduct a background check on the person who has approached you about the investment at Investor.gov, or check out his company with BBB.  If the person is a broker, you can use his or her CRD number to gain more insight into the broker's record.
  • Have an attorney that you trust review the proposal and the supporting documentation before investing into any unknown businesses
  • Be cautious if a money manager wants to be your custodian. A custodian is a broker-dealer that maintains investment accounts. If a money manager asks you to write a check directly to them, it is a red flag. It would be better to write the check to the custodial firm.
  • Trust your instincts. There are times when your instincts will tell you something is wrong. If you don't feel comfortable about an investment, walk away.

About the Author

Amanda Butler Schley

Ranked as a Top Rated Business and Commercial Attorney, I have more than a decade of experience representing boutique hotels, family-owned businesses, privately owned restaurants, breweries, artists, executives and entrepreneurs.

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