It's what everyone wants to know when they hear about a possible investment: Is it legitimate or a scam?
“I really thought it was my ticket out of working 4 part time jobs, I really did,” said Nathan Amsden.
Amsden spent years saving money so that he could start making modest investments to prepare to send his children to college. Then he met Bill Orestis who began laying the groundwork to lure Amsden into an investment scam.
"What they were saying is they wanted to put a pool of people together to pool all their money together so they can get into the market to trade the Euro," explained US Postal Inspector Dan Forristal.
Orestis was very persuasive and offered to put money in himself.
Amsden explained, "If I come up with 15, and you come up with 5, that will close the deal and cause the market is going really crazy right now and I want in on this. So he hooked me in, we closed that deal, I came up with $5-thousand and he gave me a note, a personal note promising to pay me back."
And Orestis showed Amsden documentation illustrating what appeared to be the investment's track record.
"The victims would have a chance to look at what looked like real documentation from a website that is real from a company that actually traded the Euro and it would look like there were profit margins when in fact no money had been traded," said Forristal.
Meanwhile, the conmen contined to ask Amsden for more money.
"I was always adding small amounts of principle to an imaginary figure that was snowballing in value," he said.
Amsden was not alone. There were 18 victims who lost $1.4 million in this scam. By the end, Amsden himself had invested $60,000.
"It was all I had, all I had saved up for the girls' education. Life insurance policy, the college fund, everything in cash, everything in the checkbook. At that point that was the end of our dealings because I had nothing left, he knew I had nothing left," said Amsden.
"The worst part of the whole investigation, was when they had the opportunity to take money they wouldn't take "most" of someone's money - they would take "all" of their money until there was no money left. It was never ending, they made sure to take every penny they could from people," said Forristal.
"It was pretty devastating just immediately because I felt like I'd made it," added Amsden. "I felt like I had saved enough money, it took 7 years to put it all together, I had a block of money and I was investing it like the big wigs do and it was going to pay off. I didn't need to work so hard and I could quit one of my part time jobs and we could start having Christmases, birthdays, vacations, girls go to school - to college."
Postal inspectors want all consumers to watch out for two words: no risk.
"The big thing we always see is 'no risk' the term investment in general implies risk. They go side by side. There is no investment you can make that doesn't have risk," warned Forristal.
The Better Business Bureau says if you are promised very big profits in a small amount of time, it might be a scam. Con artists may also pretend to have special knowledge or authority, claim that many others are investing, or offer a limited time deal. Watch out if you encounter high pressure to buy.
The BBB has a list of common investment scams:
Ponzi or Pyramid Schemes. The promoter promises huge profits and uses money provided by later investors to pay off earlier investors. Eventually the scheme collapses and many investors lose their money. Watch out for promises of unrealistic returns.
Boiler Rooms. Scammers call from telephone banks ("boiler rooms") to promote investments like penny stocks (low-priced or "micro-cap" stocks) that may be worthless or that may be offered at inflated prices. To avoid such scams, check out the broker, get a written prospectus, and ask questions. Some of these callers are brokers with disciplinary records - or have even had ties to organized crime.
Pump and Dump Penny Stocks. The con artist buys up a quantity of penny stocks and then falsely promotes the stock to investors through phony hot tips in websites, emails, voice messages, and other communications. After the stock price has been driven up (the "pump"), the promoter then sells his or her shares (the "dump"). The stock price crashes and investors lose their money.
Exotic or Off-Shore Foreign Investments. People have lost big sums buying shares in ostrich farms, oil and gas ventures, precious metals, mines, or unregistered foreign investments. Some of these investments are promoted as a way to avoid income tax. Buy only legitimate investments and stick with mainstream investment channels: for example, real international stocks can be purchased through mutual funds. Avoid "adventures" when investing your money. Go ahead, be boring.
Promissory Notes. Promissory notes are investments that offer above-market, fixed returns. While some are legitimate, some are fraudulent and worthless. Watch out for promises of unrealistically high returns.
Fraudulent Bank or Currency Investments. Scammers promise very high returns for investing in fraudulent bank or currency related investments. In the past, a con artist would call this a "prime bank" investment and mention foreign banks that may not exist. More recently, this fraud has been called a "risk-free guaranteed high yield investment" or some similar name, and banks are not mentioned as often.
Advance Fee Stock Purchase Scams. Con artists contact investors and offer an unrealistically high price for a stock or other investment that the investor owns. To ensure the sale the investor is asked to pay a large advance sum of money as a deposit or transaction fee. It's a scam - the purchase does not happen, and the investor loses the advance fee.
Fake Promises of Initial Public Offerings (IPOs). Sometimes investors want to take advantage of an early chance to buy a stock when it is first being offered to the public. Scam artists may try to obtain advance fees in return for the supposed right to buy stock as an early insider. Avoid such offers.
"IRA or IRS Approved" Investments. The promoters claim you can roll over your IRA investment into a supposedly more profitable investment, often in a fancy sounding industry. They may claim the plan has the approval of the IRS or another government agency. This is a clear sign of fraud - avoid all such offers.
Investments in Fraudulent Businesses. Bogus offers may involve work-at-home opportunities, make unrealistic earnings claims, or require big advance fees. Be cautious - many such schemes are frauds.