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Recognising red flags: Top warning signs of investment scams
03 Aug 2023

In today's ever-evolving financial landscape, investment opportunities abound, but so do the risks of falling victim to investment scams. Fraudsters continuously devise new tactics to exploit unsuspecting individuals, making it crucial for investors to stay vigilant and well-informed. This article aims to empower readers by highlighting the top warning signs of investment scams and providing actionable tips to avoid them.

1. Unbelievable returns: The 'Too good to be true' promise

One of the most common red flags of an investment scam is the promise of extraordinary returns with little or no risk. If an opportunity offers guaranteed high returns or claims to double your investment within an unreasonably short period, it is essential to exercise caution. Legitimate investments carry inherent risks, and while some may yield substantial returns, no investment is entirely risk-free.

2. Pressure to act quickly: Urgency and fear tactics

Scammers often use psychological tactics to create a sense of urgency and fear, pressuring potential victims into making impulsive decisions. They may claim that the opportunity is limited, and failure to act promptly will result in a missed chance to profit. Reputable investment opportunities allow investors time to research and make informed decisions, so be wary of high-pressure tactics.

3. Lack of proper documentation: Missing credentials and licenses

When considering an investment, always request comprehensive documentation related to the opportunity. Legitimate investment providers should have no issue providing relevant licenses, registrations, and disclosure documents. Avoid investments that lack proper credentials, as this could signify an unregulated or illegal scheme.

4. Unregistered investment advisors: Verify their credentials

Investors must be cautious when dealing with financial advisors and brokers. Reputable professionals should be registered with the appropriate regulatory bodies. Always verify the credentials of the individuals offering investment opportunities and refrain from working with unregistered or unlicensed advisors.

5. Complex strategies and jargon: Confusing information

Investment scammers may use complex terminology and techniques to confuse potential victims and make their offerings appear legitimate. Be wary of investments that are difficult to understand or rely on sophisticated jargon. Legitimate investment opportunities should be transparent and understandable to investors.

6. Pyramid or Ponzi schemes: Unsustainable business models

Pyramid and Ponzi schemes are fraudulent investment structures that rely on recruiting new investors to pay returns to earlier investors. They eventually collapse when recruits become scarce. If an investment opportunity relies heavily on recruitment rather than generating revenue from legitimate business activities, it could be a pyramid or Ponzi scheme.

7. No physical presence or contact information: Elusive entities

Before investing, research the company or individual thoroughly. Legitimate investment providers have an easily visible presence and provide valid contact information. Exercise extreme caution if you need help finding verifiable details or if the entity is in an offshore jurisdiction.

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).