Buyer beware! The top 10 investment scams

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Has someone made you an investment offer that sounds too good — and lucrative — to be true? Then it probably is. Two years ago financial advisor rating firm Paladin Research & Registry compiled a list of the 10 most common and potentially destructive investment scams out there. The list still holds water today. From the always suspect pyramid scheme to potentially shady annuity sales, here's a look at where you should avoid putting your money — at all costs.

By CNBC's Kenneth Kiesnoski
Reposted 26 September 2017. Originally posted 07 April 2015

Ponzi/pyramid schemes

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"Ponzi schemes have stolen more money than any other type of scam. That's because early investors, who are paid with the assets of later investors, believe they have a great investment, so they tell friends, family and associates. This phenomenon creates a lot of new investors who provide the assets scam operators need to meet the withdrawal requests of early investors. Ponzi schemes can perpetuate themselves for decades as long as there are no excessive demands for distributions."

Source: Paladin Research & Registry

Promissory notes

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"Promissory notes are a popular scam sold to seniors who need high interest rates and low risk to fund their standards of living during retirement. A promissory note appears to be the perfect investment until the fraud is exposed and people learn there were no actual investments."

Source: Paladin Research & Registry


Hans Neleman | Getty Images

"Loans or private placements are potential scams because you do not ... know if your money was really lent to a creditworthy, collateralized borrower. You receive monthly reports stating your assets are producing great returns, but you should know by now [that] many of these reports are fake."

Source: Paladin Research & Registry

Currency scams

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"Currency scams are popular with criminals because trading currencies is an exotic undertaking, has the potential of producing high returns and has exceptional complexity, which seems to give these scams additional credibility with investors."

Source: Paladin Research & Registry

Investing in precious metals

Bloomberg | Bloomberg | Getty Images

"Investing in precious metals seems to be just as exotic as trading currencies. Like other scams, the bullion you are supposed to own may not exist. One reason is the scam operators know you will not visit the company that is supposed to be storing the bullion. Or you are sold an interest in a gold mine that does not produce any gold. Most investors take the word of the seller that the mine is producing great results."

Source: Paladin Research & Registry

Life settlements

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"Life settlements, or viaticals, sound like a reasonable investment, but they have a bad reputation. That's because they may take advantage of vulnerable seniors who are terminally ill. They can also take advantage of investors who invest in fake life settlement programs. Watch out for the newest scam — Senior Settlements — [which buys] interests in the death benefits of healthy people. It is very difficult to predict when someone is going to die. Rising longevity impacts returns. And your money is tied up for years."

Source: Paladin Research & Registry

Unregistered investments

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"Just because financial documents look real, do not assume all securities have been properly registered with the regulatory agencies. It is easy for criminals to copy real documents to create unregistered securities for fake companies."

Source: Paladin Research & Registry

Prime bank scams

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"Prime bank scams prey on people who believe the ultrawealthy have exclusive investment opportunities that are not available to the general public. And these opportunities produce exceptional returns that sound real because they are supposed to be used by the ultrawealthy."

Source: Paladin Research & Registry

Investment seminars

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"Investment seminars may also be scams, because the only people making money are those who are presenting the seminars. Most seminars promote 'get rich quick' schemes, which rarely work for the masses. To get rich, you need a great idea, a great strategy, adequate working capital and disciplined execution of the strategy. Common sense says [that] if the idea was that great, they would not be sharing it with you."

Source: Paladin Research & Registry


Dimitri Otis | Digital Vision | Getty Images

"Annuities can be an investment scam when financial advisors replace your current annuities with inferior products so they can generate a new round of commissions from your assets."

Source: Paladin Research & Registry

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