If you think you were taken in by securities fraud, you’re probably right. Unfortunately, it happens a lot. It happens to smart people. It happens to people who are sophisticated and well-educated. It happens to a really wide range of people young and old, wealthy and well-known.
What do they all have in common? That’s harder to say than you might think. It’s not that they’re elderly or vulnerable, although they might be. It’s not that they wanted to get rich quick and ignored all the red flags. Most people who are victimized by fraud are not fools.
In an area like securities fraud, the perpetrators are sophisticated and the fraud is hard to detect until it’s too late.
Consider the case of Sam Bankman-Fried, founder of the Bahamas-based cryptocurrency exchange FTX. He became a billionaire many times over catering to wealthy investors interested in getting into cryptocurrency. He was able to attract respected names in finance as clients, along with a long list of celebrities. In November 2022, FTX collapsed. The SEC alleges it was all a fraud.
What do many fraud victims have in common? Confidence and wealth
One reason scams work on successful people is simply that they are so successful. They’re used to succeeding.
According to Psychology Today, high-achievers sometimes overestimate their abilities outside their specialties. For example, people who perform at a high level in business may believe they know more about finance than they actually do. That can lead them to over-confidence in their ability to recognize a financial scam.
This can be true for seasoned investors as well as high-performers in other areas. The more comfortable you are taking financial risks, the more likely you are to be a target of securities fraud.
Furthermore, successful people are desirable targets for scams. They have the money the scammers crave.
Basics of a fraud scheme
Just as it would for a legitimate transaction, a fraud starts with a pitch. Invest in X and you will get rich. However, this pitch is carefully designed to evoke specific emotions like fear – or fear of missing out.
Fraudsters engage in high-pressure sales tactics. Common ones include claiming there is time pressure, acting like an authority, making you feel obligated. They then use “social proof” instead of actual proof to back up their claims.
“Social proof” relies on your admiration for others involved. Celebrities or experts may seem to have endorsed the investment or they may have outright endorsed it. Remember, celebrities and experts can also be fooled. If they have invested in the scheme, it is likely they are victims, too.
Social media makes fraud easier for several reasons. One is that there is often a great deal of private information available online that scammers can use to build your confidence. Another is that influencers and celebrities can now communicate easily with their followers. It can also give the illusion that you can access information that is not widely known and “get in on the ground floor.”
What you need to do
Ideally, you will use this information to recognize that you, too, could be a victim of securities fraud. Before you invest in anything novel, be sure to investigate through legitimate sources like the stock prospectus. Don’t allow anyone to pressure you into investing in anything.
If you think you may already be a victim, don’t allow embarrassment or shame to keep you from taking action. You may have legal recourse for the lost money, and you may be able to help hold the fraudster accountable. Reach out for help from an experienced securities fraud attorney.