Too good to be true: investment and money scams

Stefan, 58, sees an online advert in which a famous TV presenter praises a trading platform: “Guaranteed 2% a week”. He sends €250, and his balance on the screen grows every day. He even takes out €50 without a problem, so he adds €15,000 of savings. When he asks for his money back, the platform first wants a 20% “tax”. What is really going on?

A guaranteed high return is the biggest red flag

The return on an investment is what it earns you, as a percentage of what you put in. Investments that can earn more also go up and down, and sometimes fall. Nobody can promise a high return with no risk. When someone does, the promise itself is the warning.

Small weekly or monthly numbers hide how huge the claim is, because the gains build on each other.

Schemes that pay old members with new members’ money

A Ponzi scheme pretends to invest your money. In fact, it pays “returns” to earlier investors out of newer investors’ money. It is named after Charles Ponzi, who in 1920 promised 50% profit in 45 days. In the largest known case, Bernard Madoff’s statements showed investors about $65 billion that did not exist. He was sentenced to 150 years in prison in 2009. Ponzi schemes often report suspiciously smooth returns, month after month, and collapse when new money stops coming in.

A pyramid scheme is more open: you pay to join and earn mainly by recruiting others, who must recruit others in turn. The maths cannot last. If everyone must bring in 6 new people, the 10th level alone needs 6^9 ≈ 10 million people, almost five times the population of Slovenia. EU consumer law bans pyramid schemes in every member state.

Multi-level marketing (MLM) sells real products through networks of sellers, who also earn from the people they recruit. It is legal where most pay comes from selling to real customers. Even so, the US Federal Trade Commission warns that most people who join make little or no money, and some lose money. Warning signs are a joining fee, pressure to buy stock yourself, and income that depends mostly on recruits.

Fake platforms, hype and fake love

• Fake trading platforms show a dashboard where your balance grows, but the numbers are invented. Many claim to trade cryptocurrency, digital money recorded on computer networks rather than issued by a government. Their adverts often use fake videos of celebrities. When you want out, new “taxes” or “fees” appear.
• Pump-and-dump: promoters buy a little-known share or token, hype it in chat groups (“50 times this week!”), then sell to the latecomers. The price collapses.
• Romance scams start with a warm online relationship, often lasting months. The person never meets you or appears on a live video call. Then comes a crisis, such as a hospital bill or a customs fee, or a tip about an “investment”.

Gambling and get-rich-quick

Every casino game has a house edge: the built-in average loss, as a share of each bet. European roulette has 37 numbers, but a winning bet on one number pays only 35 times the stake. On average you lose 1 in 37, about 2.7%, of everything you bet. The chance of winning the EuroJackpot top prize is about 1 in 140 million.

Gambling can be paid entertainment, but never a plan to get rich. The same goes for “make €5,000 a month from your phone” courses: the seller earns reliably from selling the course.