Stay Clear of These 5 COVID-19 Related Investment Scams

Sadly, in times of uncertainty, scams are rampant as tricksters exploit our COVID-related fears, anxieties, and hopes. In fact, the U.S. Federal Trade Commission (FTC) received 18,235 COVID-related reports this year, adding up to $13.44 million USD in combined losses due to fraud. The Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy (OIEA) and the Division of Enforcement’s Retail Strategy Task Force jointly issued a special investor alert on April 10, focusing specifically on COVID-related investment scams.

As the coronavirus pandemic continues to rage across the globe, we want you to be fully aware of potential scams and be prepared for the worst. It is time to learn how to combat fraud and protect your resources. So let’s discuss these five investment scams and how you can avoid becoming the next victim.

Scam 1: Fraudulent Charitable Investment Schemes

This is a time of crisis for many, and we all want to do our part to help as many people as possible get through it. Fraudsters know this, so they set up disreputable investment schemes that supposedly provide treatment or offer support to people affected by the pandemic. To sniff out a charitable investment scam, be sure to research the charity independently. We recommend you use resources like GuideStar or the IRS Tax Exempt Organization Search site. Remember: if a charity isn’t listed with the IRS and still claims to be tax-exempt, this is an automatic red flag. Also, keep in mind that not all 501(c)(3) charities are legitimate, so keep asking questions.

Scam 2: Affinity Frauds

Affinity frauds, also known as community-based financial frauds, exploit people’s common ties. For instance, a particular fraud might target people of a certain age, ethnicity, sexual orientation, religion, or other shared characteristic. What’s astonishing is that the perpetrators may even try to hoodwink group or community leaders so that the leaders will influence others to participate. Therefore, even if you know the person soliciting for the investment, and even if someone you trust suggests that you invest, it pays to do a search or background check on Investor.gov.

Scam 3: Market Manipulations and Fraudulent Stock Promotions

The SEC has been taking action against bad actors in pump-and-dump schemes, in which scammers exploit and profit off of investors using exaggerated, misleading, or outright false claims to artificially inflate the price of a stock. Examples include companies falsely claiming to cure, treat, or detect COVID-19, and promising an increase in the value of the stock. These scammers are using unsolicited phone calls, online advertising or forum posting, and rumors on social media. Other misleading or fraudulent claims might appear to be legitimate if they reference government stimulus packages or industries supposedly benefiting from those programs now. Penny stocks are particularly susceptible to these tactics.

Scam 4: Fake CDs Promising High Returns

Genuine certificates of deposit are sound financial assets to include in a diverse portfolio. However, scammers are exploiting COVID-19 investment fears by promoting bogus CDs with high-interest rates and no penalty for early withdrawals. These offers may appear to be legitimate if they claim to be FDIC-insured, and they use websites with a similar URL and appearance to a legitimate financial institution. Be particularly wary if your dream CD is on a website offering no other financial products and requiring high minimum deposits. Another red flag is when the website requires you to wire funds abroad or to an account with a different name than the supposed financial institution.

Scam 5: Fraudulent Unregistered Offerings

Some offerings that are not registered with the SEC may actually be scams. For instance, unscrupulous issuers may pitch a supposedly “bottomed out” or “safe” unregistered offering from a company with a supposed interest in gold, silver, oil and gas, and other commodities. Additionally, scammers tend to promise a no-risk or very low-risk investment with a high return. These tricksters, often unregistered “professionals,” may use aggressive sales pitches as well.

While most common investments are registered with the SEC, many legitimate issuers of private placement offerings use SEC registration exemptions. For instance, there’s an SEC registration exemption under Rule 506(c) of Regulation D of the Securities Act that allows the issuer to advertise their offering and conduct other general solicitation. To protect the public, however, the rule restricts sales to accredited investors only. An accredited investor is a special category of investor, subject to income and/or net worth requirements.

The SEC’s Division of Enforcement is actively monitoring the markets, using trading suspensions and other methods to combat fraud. Since more people may be seeking private investment opportunities at this time, it’s especially crucial to watch out for both personal and general solicitations from scam companies and other bad actors. Additionally, issuers must only accept investments from verified accredited investors for their Rule 506(c) offerings. If you become aware of a fraudulent unregistered offering or other investment scam, be sure to report it to the SEC.