The Lure of “Phantom Riches”

Who doesn’t want to build wealth? It is this desire that attracts people to investments that promise high returns. However, scam artists also use this wealth building desire to persuade individuals to invest their money. Scammers will dangle the possibility of wealth in front of investors, which is a tactic known as “phantom riches.” According to the Financial Industry Regulatory Authority (FINRA), an investment scam will often take the form of a “big payoff” or “guaranteed returns.” This phantom riches tactic is one of the most common used by fraudsters.

This tactic can be described as follows:

• The scam artist promises riches so you make a decision based on emotion rather than logic.
• You invest your money, but get nothing in return. The scam artist can’t pay you, because the “riches” never really existed in the first place.

Avoid Investment Fraud

You can protect yourself from this common persuasion tactic. First, ask a lot of questions. Make sure you fully understand the information provided to you. Often, scam artists will make the investment appear complicated or obscure. Once you have your answers, verify them. Before you make any investment, you should also look into the background of the investment representative. You can use FINRA’s BrokerCheck and should also contact your state securities regulator.