5 Online Money Scams You Should Avoid

05.30.07 | Money, Online Investing | 1 Comment | by junger

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When the Internet was in its infancy, consumers were much more likely to be caught in an online investment or money scam than they are today.

But even though we're more skeptical of the "work at home" emails and the "send us your social security number" requests, online scams can still cost you dearly if you're not careful.

Here are five of the biggest online money scams you should be on the look out for, with descriptions courtesy of Wikipedia.

  1. 419 Scam
    The 'investors' are contacted, typically with an offer of the type "A rich person from the needy country needs to discreetly move money abroad, would it be possible to use your account?". The sums involved are usually in the millions of dollars, and the investor is promised a large share, often forty percent. The proposed deal is often presented as a "harmless" white-collar crime, in order to dissuade participants from later contacting the authorities. Similarly, the money is often said to be the embezzled funds of a recently deposed or killed dictator. The operation is professionally organized in Nigeria, with offices, working fax numbers, and often contacts at government offices. The investor who attempts to research the background of the offer will often find that all pieces fit perfectly together.
  2. Make Money Fast
    The "Make Money Fast" chain letter encouraged readers of the email to forward one dollar in cash to a list of people provided in the text, and to add their own name and address to the bottom of the list after deleting the name and address at the top.
  3. Online Investing Scams
    Criminals use these to try to manipulate securities prices on the stock market, for their personal profit. According to enforcement officials of the Securities and Exchange Commission, the 2 main methods used by these criminals are Pump-and-dump schemes and Short-selling or "scalping" schemes.
  4. Phishing
    Phishers attempt to fraudulently acquire sensitive information, such as usernames, passwords and credit card details, by masquerading as a trustworthy entity in an electronic communication. eBay and PayPal are two of the most targeted companies, and online banks are also common targets. Phishing is typically carried out by email or instant messaging,[2] and often directs users to give details at a website, although phone contact has been used as well.
  5. Online Auction Scams
    Fraudsters launch auctions on eBay or TradeMe with very low prices and no reservations especially for high priced items like watches, computers or high value collectibles. They received payment but never delivers, or delivers an item that is less valuable than the one offered, such as counterfeit, refurbished or used. Some fraudsters also create complete webstores that appear to be legitimate, but they never deliver the goods. In some cases, some stores or auctioneers are legitimate but eventually they stopped shipping after cashing the customers' payments.

Obviously, these are not the only online scams currently floating around the Internet. But just because you know that there are scams doesn't mean they can't happen to you.

A friend of mine tried to sell a laptop on craigslist, only to find out that the money order he was to receive was phony. Unfortunately, he had already mailed his laptop — and was left with nothing.

The Better Business Bureau has put together a list of 8 ways to avoid investment scams:

  1. Buy only from licensed or credentialed financial professionals.
  2. Review your account statements.
  3. Buy investment products that you have chosen and checked carefully.
  4. Make sure you are buying registered investment products.
  5. Ignore spam email and "hot tips."
  6. Be careful if you are invited to invest by phone, at a meeting, or at a social event.
  7. If the promoter says it's practically a "sure thing" - don't buy it.
  8. Never make an investment payable to the salesperson.

Have you ever been scammed online? Share your story in a comment.

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