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TechBe watchful, investment frauds on the rise

Be watchful, investment frauds on the rise

Published: 7th Dec 2021 12:18 am

Don’t believe in false hopes of higher returns within a short time

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Trust, or rather, misuse of trust, is a fundamental feature of investment fraud. Creating false hopes of higher returns within a short duration combined with the constraints of accessing investment-related information is the motivation for people to fall prey to fake investment schemes. There are many types of investment fraud, like Ponzi schemes, pump and dump schemes, and app-based fraudulent schemes.

There are over a hundred fake app-based investment companies, many of them originating from Chinese servers. Existing members earn commissions if they introduce new users, a typical multilevel marketing scheme. The approach is ‘you get cheated to cheat others’.

Reasons for fraud not getting detected at an early stage:

  • Diminishing moral values
  • Poor governance
  • Ineffective internal control systems
  • Compliance in letter and not in the spirit
  • The securities market is extremely volatile
  • Lack of investor awareness

Legislations that regulate deposit collecting activities:

  • The Banning of Unregulated Deposit Schemes Act, 2019
  • The Chit Funds Act of 1982
  • Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
  • Companies Act of 2013, as amended by the Companies (Acceptance of Deposits) Rules of 2014.
  • Securities and Exchange Board of India Act, 1992 & 1999

Ponzi scheme

It’s an investment fraud that usually pays existing investors with money collected from new investors. Fraudsters promise to invest your money and generate high returns at zero risk, but in reality, they do not invest the money. They pay money to new investors, which is collected by the old investors and they keep a majority of the shares for themselves.

Most investment frauds have no legitimate earnings, and such schemes require a continuous flow of new money to survive. When it becomes hard to recruit new investors, they just vanish into thin air.

Some red flags of Ponzi schemes are (a) high returns with zero risk. (b) Consistent high returns from the start of the investment (c) Bought from unregistered companies. (d) Bought from unregistered sellers (e) Inadequate Paperwork (f) Difficult payment-receiving procedures

Pump & Dump scheme

It’s an investment fraud where advisers try to pump (inflate) the price of shares by providing misleading information to investors. They try to increase the price of cheap shares by giving fake propaganda. First, these fraudsters do investment by buying cheap shares at large volumes and then send fake WhatsApp, SMS or emails to crores of investors recommending them to buy that shares which they have artificially inflated.
Looking at the increased number of people buying, the price of that share starts increasing and as soon as the share price reaches a good value, these investment advisers sell (dump) their shares and get good returns and vanish into thin air. What happens at the end is that these artificially inflated stocks fall and the retail investors (victims) lose their money. Most of the time, those who invested are first-timers, and sometimes they even know that it’s a fraud.

Apps based schemes

Scammer’s trick to investors is through fake websites appearing to be legitimate and also use fake apps (Not in App Store / Play Store) and often send phishing emails showing fake images of Wallet Balances to lure them to invest in cryptocurrencies, stocks or e-commerce products.

The Modus operandi is i.e. (a) Firstly the victims are requested by known friends to join WhatsApp groups. (b) They are asked to download apps via links and new joiners get a joining bonus which shows on their wallet. (c) Trading happens (victims are asked to perform tasks) i.e. selling/buying of shares or e-commerce products. (d) Victims are asked to introduce new people to the system and they get an incentive for all tasks they perform, and the introduced person gets incentive added to their wallet (e) Based on the tasks performed the wallet accumulates money. (f) When the victim tries to withdraw their earnings from their wallets they will not be able to withdraw and they are asked to pay income tax, processing fee, GST fee etc. (g) Once the requested fees are paid, the apps don’t work and show an error and any efforts to reach the customer service are futile.


Common signs to avoid getting caught in a trap

  • Promising abnormally high guaranteed returns
  • Requesting high initial investment
  • Complicated and unsustainable business model
  • Promising to pay back for losses
  • Investing in apps not listed in App Store or Play Store

Do a little due diligence, instead of blindly believing

  • Ask for proper regulatory/ compliance approval
  • Do not issue cheques in advance
  • Regularly checking account statements
  • Watch the performance “Promised vs Actual”
  • Don’t do the financial transaction on Apps that are downloaded from App Store / Play Store Only
  • Don’t do financial transactions during phone conversations or while on-screen sharing sessions

Stay tuned to the Cyber Talk Column for more on internet ethics and digital wellness brought to you by Anil Rachamalla of the End Now Foundation (

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