After Bernie Madoff made off with more than $60 billion in fraudulent funds, investment scams received a lot of high-profile attention in the media. There is, however, a wide array of confidence schemes that financial shysters use to defraud starry-eyed investors. Take this quiz to find out if you can tell the difference between a solid investment and a shady risk.
Why are thinly traded stocks often used as tools in investment scams?
easily manipulated stock prices
less likely to be noticed by regulators
few people know enough about them to realize they are overvalued
How much money do Americans lose to scams every year?
between $85 million and $125 million
billions of dollars
What is the defining feature of an affinity scam?
The perpetrators prey on people within a specific community or group.
The scammer victimizes his or her relatives.
The victims don't even realize they have been scammed.
What product did Charles Ponzi sell in his investment scheme?
International Postal Reply Coupons
U.S. Government Bonds
stock certificates of a small textile company
What is the defining feature of a Ponzi scheme?
paying investors dividends from the purchases of other investors
selling shares in elite foreign banks
sales from unlicensed agents
What type of scam promotes investments in elite overseas financial institutions that don't actually exist?
prime bank scams
promissory note scams
Why does the urgency and scarcity concept within a con work?
because people don't want to miss out on a money-making opportunity
because the scam artist is more convincing when he speaks with urgency
because these emotional pleas make the investor overlook the obvious risks
What is a prospectus?
a document that outlines the details, risks and upside potential of an investment
an outline of the past returns on a specific investment
an investment opportunity that is more risky
What type of investment offers deserve extra caution?
high value stocks
investments in financial institutions, such as banks
Why should you be wary of a quick return on investment?
It may be a fake profit in order to encourage further investment.
It may be a sign of higher taxes to come.
It may indicate that you are involved in a Ponzi scheme.