The Bach Law Firm has litigated numerous cases involving investment and real estate frauds. Investment frauds usually involve tricking people into purchasing stocks or making other investments by providing misleading or false information. Real estate, or mortgage fraud, usually involves a scam-artist who misrepresents their ownership interest in property in order to obtain a “loan” or payment from their victim, or they take advantage of existing or prospective home-owners. Every year many people fall victim to phony investment and real estate schemes that sound and look legitimate, and may provoke them into spending large amounts of money. There are several types of investment and real estate fraud to look out for.
Nonexistent stocks
Some con artists have preyed on victims with completely false stories about stock investments that supposedly have small amounts of risk and provide large profits. The problem is, these stocks don't exist, and the con artists will pocket any money they receive. This scam is most often used against elderly people who are retired and less likely to investigate the background of the person attempting to sell the stock. In one famous case, a con artist brought his daughter along to help with the scheme in the hopes of appearing to be more trustworthy.
Errant messages
Victims of this scam seem to accidentally intercept an important tip via fax or email. These tips appear to come from an individual who has heard about a "sure fire" investment and wants to let his closest friends or family in on what is sure to be a huge money making plan.
The problem is these messages are "accidentally" sent to hundreds or thousands of people. They are sent by con artists who have purchased stock at a very low price and are hoping to drive the rate of that stock up so that they may sell it for a profit. Faxes or emails are sent to "wrong" numbers and addresses, and the recipients may think they have received some once in a lifetime information from someone with insider knowledge.
As soon as enough people purchase the stock, the price will start to go up. That can cause a chain reaction leading to an even larger rise in the value. The people who put out the fake message can then easily find a buyer for their shares, and sell the stock at highly inflated prices.
Ponzi Scheme
This scam is similar to a pyramid scheme, and was created by Charles Ponzi. The concept is to take money from investors, but instead of investing that money, the con artist keeps it and continues to find new investors and obtain more money. Depending on how long the scammer continues with this system, they may pay back the original investors with the new money they take in, thus making it appear that the plan is actually working.
In the end, either the criminal runs out of investors or just takes a large sum of money and disappears. Either way, the scammer receives a big payoff, and most of the investors lose everything.
Profiteering
Participants in this scam will offer loans for properties that do not actually exist or claim property values of homes are much higher than they are actually worth. This allows them to charge large amounts of money and keep the extra profit for themselves.
Equity skimming
In this scheme, a financial investor will work with a second party who acts as a Buyer in order to purchase a home. The mortgage will be drawn in the Buyers name, but as soon as the loans close, the Buyer signs the mortgage back over the investor. The investor then rents out the home in order to receive income, but does not pay the mortgage and eventually allows the property to be foreclosed on.
Property flipping
Flipping involves the scam of appraising the value of a home at a much higher rate than it should be. This inflated appraisal amount will help the house to be sold for much more money than it is actually worth. The home is usually sold several times, or flipped, for higher prices each time. The final buyer of the home may purchase it for thousands of dollars more than it is actually worth.
Avoiding investment and real estate frauds
The best way to avoid these scams is to be careful, skeptical and research anything you are interested in investing in before giving anyone your money. Ignore messages you receive that seem to be hot tips intended for someone else, or Emails that claim a particular stock is going to rise in value right away. Verify any stock options with an independent third party group to be certain they are valid.
When making any investment, remember to take your time and investigate your options before getting started. Watch out for claims that sound "too good to be true", because they probably are. Remember that no investment is a certainty, but by planning ahead and knowing what you are getting into, you can avoid being defrauded of your income by con artists.