In 2022, investment scams in the United States and Canada resulted in the loss of over $6.3 billion for more than 106,000 individuals. The convenience of online investing has made it tempting to click and invest, lured by the promise of substantial financial gains.
However, it’s not as straightforward as it seems. All investments carry some level of risk, and it’s crucial to be vigilant not only about the stock market but also about the entities and opportunities you choose to invest in.
Sophisticated investment scams come in various forms, cleverly camouflaged alongside legitimate offerings, aiming to exploit individuals seeking quick wealth. These scams range from Ponzi schemes to advance fee frauds.
The year 2022 witnessed a significant rise in investment fraud cases, with over 106,000 Americans falling victim to such scams, resulting in a staggering loss of more than $6.38 billion. This represents a 16 percent increase in reported investment-related scams compared to the previous year (from 91,762 to 106,201), and the amount lost surged by 121 percent (from $2.89 billion in 2021 to over $6.38 billion in 2022).
Both the Federal Trade Commission (FTC) and the IC3 (Internet Crime Complaint Center) concur that investment fraud surpassed all other categories in terms of financial losses in 2022. The IC3 highlights the unprecedented rise in the number of victims and the amount of money lost due to investment scams. Additionally, the IC3 underscores the alarming increase in cryptocurrency-related scams, reporting a 183 percent surge from $907 million in 2021 to $2.57 billion in 2022. The exponential growth of scams associated with cryptocurrencies will be explored further in the following discussion.
Here are the key findings:
In 2022, an estimated 106,201 individuals fell victim to investment scams, marking a 16 percent increase compared to 2021’s figure of 91,762.
The losses resulting from these scams amounted to an estimated $6,387,441,626, reflecting a significant 121 percent increase from the previous year’s $2.89 billion.
The IC3 reported a 61 percent surge in the number of investment-related scam cases from 2021 to 2022, rising from 14,381 to 23,165. The financial impact was even more severe, with the amount lost increasing by 191 percent, reaching just shy of $3 billion from the previous year’s $1 billion.
According to BBB data, investment scam reports decreased by 33 percent, declining from 322 to 216 cases. However, the amount lost to these reports rose by 136 percent, escalating from $1.28 million to $3 million.
SARs (Suspicious Activity Reports) case figures also saw a decrease of 14 percent, dropping from 26,206 in 2021 to 22,478 in 2022.
The average amount lost per investment scam reported to the FTC increased from $20,333 in 2021 to $36,484 in 2022.
Investment scam cases and losses experienced a significant increase in 2022.
Our research reveals that the number of investment scams surpassed 100,000 for the first time, with losses more than doubling compared to the previous year.
In 2022, the Federal Trade Commission (FTC) received 104,703 reports of investment scams, marking a substantial 27 percent increase from the 82,564 reports in 2021. The financial impact of these scams more than doubled in a single year, with losses reaching over $3.82 billion in 2022, compared to $1.68 billion in 2021.
During the same period, the Internet Crime Complaint Center (IC3) observed a 48 percent rise in investment scam reports, escalating from 20,561 in 2021 to 30,529 in 2022. The amount lost to these scams experienced an even more significant increase of 128 percent, climbing from $1.45 billion in 2021 to $3.31 billion in 2022.
Notably, the IC3’s annual report highlighted the concerning prevalence of investment scams involving cryptocurrencies. These scams witnessed “unprecedented” growth, particularly impacting individuals aged 30 to 49, who accounted for the highest number of victims.
The notable crypto scams included:
- Liquidity mining: Victims are lured into connecting their wallets to a fraudulent application. Subsequently, scammers drain the funds from the victims’ wallets.
- Social media hacking: Scammers gain unauthorized access to social media accounts and exploit them to promote fake cryptocurrency opportunities. They specifically target the friends and contacts of the hacked users.
- Celebrity impersonation: Scammers impersonate well-known celebrities to establish a false sense of friendship with their victims. They manipulate this trust to persuade victims to invest in cryptocurrencies.
- Real estate: Scammers approach real estate professionals and propose purchasing high-value properties using cryptocurrency or cash. Once involved, they attempt to convince professionals to invest in fraudulent schemes by presenting fictitious accounts with substantial amounts of money.
- Employment: Victims are deceived into applying for positions with fake cryptocurrency companies. Instead of receiving a job, they are given fraudulent crypto advice that ultimately leads to monetary loss.
What are some common investment scams and what warning signs should you be aware of?
The Suspicious Activity Reports (SARs) reported to the Financial Crimes Enforcement Network (FinCEN) shed light on prevalent types of investment fraud. In 2022, securities accounted for the most reported scheme with 4,996 cases, followed by advanced fee scams (3,622 cases) and insider trading (3,120 cases).
Here are definitions for well-known investment scams to keep in mind:
- Advanced Fee: Victims are asked to make a small upfront payment with the promise of earning a greater value, but end up losing everything.
- Insider Trading: Illegally trading on the stock exchange using confidential information for personal gain.
- Market Manipulation: Artificially influencing stock prices to rise or fall significantly.
- Misappropriation: Using someone’s investment funds for purposes not agreed upon, akin to theft.
- Ponzi Scheme: Utilizing funds from new investors to pay previous investors, creating a false sense of profitability.
- Pyramid Scheme: Participants are required to recruit others, with returns from subsequent recruits given to earlier participants. Similar to a Ponzi scheme, but victims themselves become recruiters.
- Unauthorized Pooling: Illegal collaboration among investors to benefit from a larger pool of funds.
- Wash Trading: Collaborative manipulation by brokers and traders who provide misleading market information for personal gain.
- Cryptocurrency Schemes: Crypto investment scams encompass various aforementioned schemes. Scammers use cryptocurrencies as a popular payment method. They may employ referral chains resembling pyramid schemes or create deceptive investment websites that appear legitimate but result in losses for investors. Other scams involve fraudulent giveaways with crypto “celebrities” that only benefit the scammers.
To invest safely online, be cautious about entrusting your money and watch out for these warning signs:
- If an investment appears too good to be true, it likely is.
- Beware of claims of “guaranteed returns” or “risk-free” investments, as all investments carry some level of risk.
- Take your time and ask questions. Scammers often rush individuals into making hasty decisions.
- Conduct thorough research before investing. The more information you gather, the better.
- Be cautious if the scammer suggests that “everyone is buying it,” as this is often indicative of an investment scam.
- If someone pressures you to send money immediately, resist and verify the source’s reliability.
- Check for product registration to avoid purchasing fake products. Conduct a quick online search to confirm their authenticity.
- Avoid complex investing strategies. Legitimate investment professionals should be able to clearly explain their system.
If you have encountered any of these situations while investing, take these steps to protect yourself:
- Firmly decline and say “no” to suspected scammers.
- Seek the opinion of someone else before proceeding with the investment.
- Safeguard your personal information and secure your social media accounts with two-factor authentication.
- Search for reviews or similar scams online to identify common patterns.
- Block and report individuals you suspect to be investment scammers.
IC3 Data: https://www.ic3.gov/Media/PDF/AnnualReport/2022_IC3Report.pdf
FTC Data: https://public.tableau.com/app/profile/federal.trade.commission/viz/FraudReports/FraudFacts
BBB Data: https://www.bbb.org/
SARs Data: https://www.fincen.gov/index.php/reports/sar-stats/