How to Avoid Investment Scams

The surest way to avoid an investment scam is to verify before you trust. Before any money moves, confirm that the firm and the person are registered, find their contact details yourself rather than using the ones you were given, and walk away from anyone who promises guaranteed returns, pushes you to hurry or asks you to pay by crypto, wire or gift card.

That sounds simple, and it is. The difficulty is that a modern scam is built to feel like the opposite of a scam: a friendly contact, a professional website, an app with real-looking profits, and a story that makes perfect sense until the money is gone.

This guide shows you how today’s investment scams work, the red flags that give them away, the checks that stop them, and exactly what to do if you think you have been targeted. FRC has no stake in where you invest: we do not run brokerage accounts, sell investments or earn referral fees, so everything here is explained impartially from the regulatory rules up.

Prefer to watch first? See the FRC ETF video series for each stage of investing in minutes, and keep FRC’s complete step-by-step guide to investing in ETFs as your route through the regulated system.

How Investment Scams Work, and How to Stop One

The Scale of the Problem

Investment fraud is now the most expensive type of scam reported in the United States. The Federal Trade Commission reported that consumers lost $15.9 billion to fraud in 2025, with investment scams the largest category at $7.9 billion.

The FBI’s Internet Crime Complaint Center tells the same story. Its 2025 report recorded 1,008,597 complaints and $20.877 billion in reported losses, with investment fraud leading at over $8.6 billion and cryptocurrency investment fraud alone accounting for over $7.2 billion.

Those figures only count what people reported. Many victims never report at all, out of embarrassment or because they do not realise they have been scammed until much later.

Why Capable, Careful People Get Caught

Scams do not target the foolish. They target ordinary hopes and fears: wanting to catch up on savings, worrying about missing out, trusting someone who seems kind, or wanting to help a relative.

The best scams are patient. A fraudster may spend weeks building a friendship or a reputation before money is ever mentioned, then start with a small investment that appears to make a healthy profit, which is exactly what makes the larger request feel safe.

They also create pressure. A deadline, a limited spot, a “frozen” account or a fee that must be paid today are all designed to stop you doing the one thing that defeats them: slowing down and checking.

The Golden Rule: Verify Before You Trust

Almost every investment scam has one weakness in common: the people running it are not registered, or are pretending to be someone who is. The SEC’s investor education office states that “Unlicensed, unregistered persons commit much of the investment fraud in the United States.”

In the US, a firm that buys and sells securities for customers must generally be a registered broker-dealer and a member of the Financial Industry Regulatory Authority. Individuals who sell securities must be registered too, under rules such as FINRA Rule 1210, and investment advisers register with the SEC or their state.

You can check all of this for free on FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure database, which draw on the Central Registration Depository. A report shows the exams a professional has passed, the firms they have worked for and any disclosures on their record.

Those exams, the SIE, Series 7 and Series 65, are where the rules that protect investors are taught. FRC’s SIE Exam Prep, Series 7 Exam Preparation and Series 65 courses cover them in full, and they are open to anyone who wants to understand how a real investment professional is supposed to behave.

The Most Common Investment Scams Today

Relationship investment scams, often called pig butchering, start with a message that seems to reach you by mistake, or a contact on a dating app or social media. According to FinCEN, fraudsters build false trust, steer victims to fake but convincing investment websites, often ask them to buy cryptocurrency, show falsified large returns to encourage bigger deposits, and then cut off contact and keep the money.

Impersonation scams use the names, logos, registration numbers and even spoofed phone numbers of real firms and professionals. FINRA warns that scammers send fake BrokerCheck reports using a real professional’s name and CRD number, linked to a company that is not registered at all.

Technology has made impersonation more convincing. The SEC warns that fraudsters now hide behind voice-changing software, messaging apps and AI-generated content, including cloned voices and deepfake videos, so a familiar face or voice on a screen is no longer enough on its own. If a call or video asks you to move money, end it and contact the person or firm through details you already know are real.

Social media and messaging app groups promise insider tips, “signals” or a mentor who will teach you to trade. The SEC lists pressure to move conversations to encrypted apps such as Telegram or WhatsApp as a red flag, and the profits shared in these groups are often fabricated.

Fake trading apps and platforms look like real brokers, show a balance that appears to grow, and let you withdraw small amounts at first to build confidence. When you try to withdraw a larger sum, you are told to pay a “fee”, “tax” or “unlock charge” first, and the money never arrives.

Pump-and-dump schemes hype a little-known stock, often online, to push its price up so the promoters can sell at the top. Ponzi schemes pay earlier investors with money from newer ones, which works only until new money dries up, as the collapse of Bernard L. Madoff Investment Securities showed in 2008.

Affinity fraud targets members of a close-knit group, such as a religious, ethnic, community or professional network, using shared trust to bypass scepticism. Pre-IPO scams offer supposed shares in famous private companies before they go public, and regulators have also warned about schemes claiming that artificial intelligence or trading bots can generate guaranteed returns.

Recovery scams target people who have already lost money, offering to get it back for an upfront fee. They are part of the same fraud economy, and real regulators never charge you to report a scam.

The Red Flags That Should Stop You

Guaranteed returns, or high returns with little or no risk, are the oldest warning sign of all. Real investments carry real risk, and anyone who tells you otherwise is either mistaken or lying.

Pressure to act now is the next. A real investment opportunity will still be available tomorrow, while a scam depends on you deciding before you check.

Unusual payment methods are a strong signal. Requests to pay by cryptocurrency, wire transfer to a personal account, gift cards or payment apps, or to send money to anyone other than a registered firm, should end the conversation.

So should refusal to speak by phone or meet by video, insistence on encrypted messaging apps, reliance on testimonials that may be fake, and any demand for a fee before you can withdraw your own money. The SEC’s investor education office advises sending deposits only to the SIPC member firm or its SIPC member clearing firm, never to an individual.

Seven Checks Before You Invest a Single Dollar

First, search the firm’s full legal name on BrokerCheck, and search any individual by name. If they do not appear, stop.

Second, check advisers on the SEC’s IAPD database through Investor.gov, and read the firm’s Form CRS, a plain-language summary of services, fees and conflicts. Third, confirm the firm on SIPC’s own list of members, because a SIPC logo on a website can be copied by anyone.

Fourth, find the firm’s phone number and website yourself, from its Form CRS or official site, and contact it that way, never through details in the message you received. Fifth, read the disclosures on BrokerCheck, which firms must report under rules such as FINRA Rule 4530.

Sixth, search the SEC’s Public Alert: Unregistered Soliciting Entities list, known as PAUSE, which names entities that have falsely claimed to be registered or impersonated real firms. Seventh, if you still have doubts, contact your state securities regulator, which can tell you whether a firm or person is licensed in your state.

If the product is futures or forex rather than securities, check the National Futures Association’s BASIC database instead. Securities and futures have separate registration systems.

How to Handle Unexpected Contact

Treat any unsolicited message about money with suspicion, however friendly or official it seems. That includes texts about a “locked” account, calls from someone claiming to be your broker’s fraud team, and new online friends who happen to have a brilliant investment strategy.

Never click links or call numbers in an unexpected message. Open your broker’s app directly, or type its web address yourself, and check there.

Never share a password, one-time code or security answer with anyone who contacts you. Robinhood, for example, states plainly that it will never ask you to download software or transfer money, and the same principle applies at every regulated firm.

Why Regulated Accounts Are Harder to Steal From

Keeping your investments inside the regulated system is itself a defence. At a registered, SIPC member broker, your securities must be held separately from the firm’s own money, and SIPC protects customers of failed firms up to $500,000, including $250,000 in cash.

Large brokers also publish guarantees against unauthorized activity in your account, and offer tools such as multi-factor authentication, transfer locks and account alerts. Switch on every one you are comfortable using.

There is an important limit, though. Most guarantees treat transfers you make yourself, even if a scammer persuaded you, as authorized, so the strongest protection is never being talked into moving the money in the first place. FRC’s guide to whether your money is safe in a brokerage account explains each layer in detail.

Crypto and Offshore Platforms: Where Protection Ends

Crypto is at the centre of today’s investment fraud, and the reason is simple: it moves fast, across borders, and is hard to reverse. Crypto assets are generally not SIPC protected, and many crypto platforms are not registered broker-dealers.

Offshore platforms can look polished and may even claim overseas licences. But a platform that is not a US-registered, SIPC member firm sits outside US investor protection, and if it disappears, there may be no realistic route to recovery.

If someone you met online directs you to a specific crypto platform or app to invest, treat that as one of the clearest warning signs there is. That pattern sits at the heart of the relationship scams FinCEN describes.

Protecting Older Relatives and Loved Ones

Fraudsters deliberately target older investors, who often have savings and may be more trusting of polite strangers. A few steps make a real difference.

When you open a brokerage account, you will be asked to name a trusted contact person under FINRA Rule 4512. That person cannot access the money, but the firm can contact them if it suspects fraud or financial exploitation, and encouraging an older relative to name one is a quiet but powerful safeguard.

Talk openly about scams, without judgement, so a relative feels able to mention an unusual call or a new online friend. FINRA’s Securities Helpline for Seniors is available on 844-574-3577, Monday to Friday, 9am to 5pm Eastern time.

What to Do If You Think You Have Been Scammed

Stop sending money immediately, however much pressure you are under. Scammers often demand one more payment to “release” funds, and that payment will be lost too.

Contact your bank, card provider or payment service straight away to try to stop or reverse the transaction. Then report what happened to the SEC at sec.gov/tcr, to FINRA through its regulatory tip page, and, for online scams, to the FBI’s Internet Crime Complaint Center at ic3.gov.

Your state securities regulator and local law enforcement can also help. Keep every message, screenshot, email and payment record, because investigators rely on them.

Be ready for the follow-up. Anyone who contacts you offering to recover your money for a fee is very likely running a recovery scam, and official agencies do not charge victims to investigate.

If you have also lost access to a real brokerage account, put a complaint in writing to the firm. Brokers must keep records of written customer complaints under FINRA Rule 4513, which gives you a formal record of what you reported and when.

Common Questions

How can I tell if an investment is a scam? Check whether the firm and person are registered on BrokerCheck or IAPD, confirm their contact details yourself, and treat guaranteed returns, pressure to hurry and unusual payment methods as stop signs.

What is the costliest type of investment scam right now? According to the FBI’s 2025 report, cryptocurrency investment fraud accounted for over $7.2 billion in reported losses, much of it linked to relationship scams that begin online.

Can I get my money back after an investment scam? Sometimes, if you act quickly through your bank or payment provider and report to the authorities, but recovery is often difficult. Never pay anyone who promises to recover it for a fee.

Is a broker with a professional website and app safe? Not necessarily. Scammers build convincing websites and apps, so registration on BrokerCheck and SIPC membership are what count, not appearance.

Are investment tips on social media safe to follow? Treat them with great caution. Regulators warn about fabricated profits, pump-and-dump schemes and impersonators on social media and in messaging groups.

Knowing the Rules Is the Best Protection There Is

Every check in this guide comes from the same place: the rules that govern how registered firms and professionals must behave. Once you know what a real broker is required to do, a fake one becomes much easier to spot.

FRC’s programmes and memberships are open to everyone. Whether you want to invest with more confidence, protect your family, understand what your broker owes you, or explore a career in the industry, the SIE is the natural starting point, and the full USA course list shows where you can go next.

FRC’s Professional Membership adds structured learning, verified progress and a growing set of tools for people who want to keep building their knowledge. The FRC dictionary, which explains every term used in this guide, is free for everyone.

Your Next Step

Investment scams succeed by moving faster than your doubts. Slow down, verify every firm and person yourself, never pay in ways you cannot reverse, and keep your investments inside the regulated system where the rules protect you.

When you are ready to choose a regulated firm, FRC’s guide to the best brokerage accounts for beginners compares the leading names side by side. Then carry on with FRC’s complete guide to investing in ETFs and build your investments the safe way.