Scams, Frauds and Red Flags

The size of the problem, and why it works on smart people

Fraud is not a fringe risk. In 2025 Americans reported $15.9 billion of fraud losses to the Federal Trade Commission, from about three million reports, and **investment scams were the costliest category, at $7.9 billion** — about half of the total. Impersonation scams were the most commonly reported, with more than a million reports. And reported losses are a fraction of the real ones, because most victims never report; the FTC has estimated that the true annual cost, including unreported fraud, could be far larger. The victims are not mainly naive. Investment fraud works on educated, confident people because it uses the same levers this subject has spent its earlier lessons teaching against: the hope of a return that solves a problem quickly, the comfort of a trusted messenger, the fear of missing out, and the shame that keeps people from asking. A scheme does not need you to be foolish; it needs you to be in a hurry, flattered, or lonely for one afternoon. That is why the defence is a procedure rather than a feeling. You do not need to out-think a professional liar in conversation. You need a short list of checks you run every time, before any money moves, and two or three rules you never break — no matter how good the story or how kind the person telling it. • 2025: $15.9 billion of reported fraud losses; $7.9 billion to investment scams — the largest category. • Reported losses understate the real ones; most victims never report. • Fraud targets hurry, trust and fear of missing out — not stupidity. • The defence is a procedure you run every time, not a judgement made in the moment. Consumer fraud reported to the FTC, 2025 — Total reported losses: $15.9 billion, from about 3 million reports · Investment scams: $7.9 billion — the costliest category ← · Impersonation scams: The most reported — over a million reports, over $3.5 billion lost

Five patterns behind most investment fraud

The **Ponzi scheme** pays early investors with later investors’ money and reports steady, high returns that do not exist. It is named after Charles Ponzi, whose 1920 scheme promised 50% in 45 days, and its largest modern example is Bernard Madoff, arrested in December 2008 with paper losses in the tens of billions and sentenced to 150 years. Its signature is smoothness: returns that never have a bad month, from a strategy nobody can explain or inspect. It collapses when new money stops arriving faster than withdrawals. The **pump-and-dump** buys a cheap, thinly traded stock, promotes it — now mostly through social media and group chats — and sells into the buying it created, leaving the late buyers with a collapsing price. **Affinity fraud** targets a group whose members trust each other — a congregation, an ethnic community, a profession, a club — and spreads by recommendation, because each victim vouches for the scheme to the next. **Relationship investment scams**, which law enforcement calls “pig butchering”, build a friendship or romance online over weeks before introducing a fake trading platform that shows growing balances; the victim adds more, tries to withdraw, and is asked for “taxes” or “fees” to release money that was never invested. And **impersonation** scams pose as a bank’s fraud department, a government agency or a well-known firm, and ask you to move money “to keep it safe”. The patterns combine, and the same tells keep reappearing: a promised return that is high and steady, pressure to act before you can check, secrecy, payment by wire, cryptocurrency or gift card, and a seller or product that is not registered. When two or three of those appear together, you do not need to know which pattern it is to know what to do. • Ponzi: steady, high returns paid from new money — collapses when inflows slow. • Pump-and-dump: promote a thin stock, sell into the buying. • Affinity fraud: spreads through a trusted group, victim to victim. • Relationship scams: weeks of friendship, then a fake platform and “fees” to withdraw. • Impersonation: a fake bank, agency or firm asking you to move money “to safety”. The tell, by pattern — Ponzi scheme: Returns too smooth to be real; strategy secret · Pump-and-dump: A thinly traded stock suddenly everywhere online · Affinity fraud: Vouched for by the group, never independently checked ← · Relationship scam: An online friend with a trading app and a withdrawal “fee” · Impersonation: Urgency and a request to move money “to a safe account”

The checks that defeat almost all of them

Most investment fraud fails a two-minute check, which is why the people running it work so hard to stop you making one. First, **check the person**. Anyone selling securities or giving investment advice for pay in the United States should appear in FINRA’s BrokerCheck or in the SEC’s Investment Adviser Public Disclosure database, which also show disciplinary history. Second, **check the product**: offerings sold to the public are generally registered with the SEC or a state, and registered offerings have filings you can read on the SEC’s EDGAR system. An unregistered seller pitching an unregistered product is the single strongest indicator of fraud there is. Third, **check the contact itself**. If someone says they are from your bank, your broker or a government agency, hang up and call the number on the institution’s own website or on your card — never a number, link or app they supply. Fourth, **refuse the payment methods fraud depends on**: no legitimate investment requires a wire to a personal account, cryptocurrency sent to an address you were given, gift cards, or cash handed to a courier. Those methods are chosen because they are fast and nearly impossible to reverse. Fifth, **slow down and tell someone**. Urgency is manufactured because time is what defeats a scam. A real opportunity survives a weekend and a conversation with someone outside the pitch — a family member, an accountant, or your broker’s compliance line. If a seller objects to you checking, asking or waiting, you have your answer. • Check the person: FINRA BrokerCheck or the SEC’s adviser database. • Check the product: registration and filings on the SEC’s EDGAR or with your state. • Check the contact: call back on a number you find yourself. • Refuse wire-to-a-person, crypto, gift cards and couriers — always. • Slow down and tell someone; a real offer survives a weekend. Five checks, about five minutes — Is the seller registered?: BrokerCheck / Investment Adviser Public Disclosure · Is the product registered?: SEC EDGAR or the state securities regulator ← · Is the contact real?: Call back on a number you looked up yourself · How do they want to be paid?: Wire to a person, crypto, gift cards → stop · Can it wait a weekend?: If not, it is not an investment Registration is not a guarantee of quality — registered firms can sell bad products — but its absence is close to a guarantee of trouble.

After a loss: report it, and beware the second scam

If you have sent money, speed matters. Contact your bank or the payment provider immediately — some transfers can still be stopped or recalled within hours — then report to the FBI’s Internet Crime Complaint Center (IC3) and the FTC, and, for securities, to the SEC and your state regulator. Keep every message, address and receipt. Reports rarely bring the money back on their own, but they are how investigators connect cases, freeze accounts and sometimes recover funds for many victims at once. The most cruel pattern arrives next. People who have lost money to fraud are put on lists that are sold and traded, and they are contacted by **recovery scams**: a “law firm”, “asset recovery service” or even a fake government official who promises to get the money back for an upfront fee. Government agencies do not charge to return money, and legitimate lawyers do not cold-call fraud victims asking for payment in crypto. A second loss on top of the first is common, and it is entirely avoidable. Finally, talk about it. Shame is the scammer’s best protection, because it keeps victims from warning the people around them — often the same community the scheme is still working through. Treat a loss as a fraud committed against you, not a test you failed, and the next person in your circle is far less likely to lose money to the same people. • Call your bank or payment provider at once; some transfers can be stopped. • Report: FBI IC3, the FTC, the SEC and your state securities regulator. • Recovery scams target victims — no real agency charges to return money. • Talk about it: silence protects the scheme, not you. Who to call, in order — Your bank or payment provider: Immediately — a recall may still be possible · FBI Internet Crime Complaint Center: ic3.gov ← · Federal Trade Commission: ReportFraud.ftc.gov · SEC and state securities regulator: For investment and securities fraud

New wrappers on old tricks: AI, deepfakes and fake platforms

The patterns are old; the packaging changes every year, and the current packaging is technology. Regulators have warned about **AI-themed** investment fraud — schemes that claim an artificial-intelligence trading system produces outsized, steady returns — which is simply the smooth-returns Ponzi pitch with a fashionable explanation of why nobody can inspect the strategy. The SEC, FINRA and state regulators issued a joint investor alert on exactly this in 2024. A claim that a model “cannot lose” is the same red flag it was when the model was a person. **Deepfakes** have made impersonation cheaper and more convincing. Fraudsters now use cloned voices and synthetic videos of executives, celebrities and even family members to recommend investments or to ask for urgent transfers, and a video that looks and sounds right is no longer evidence that the person in it said anything. The defence is the same as for any impersonation: verify through a channel you control — call back on a number you already had, or ask a question only the real person could answer — before money moves. **Fake platforms** complete the picture. A professional-looking app or website shows a balance that grows every day, with charts, a support chat and even small early withdrawals that succeed to build trust. None of it is connected to any market. Check that the platform belongs to a firm you can find on BrokerCheck or the SEC’s databases, that the app comes from that firm, and that you can withdraw your own money without paying anything first; a platform that charges you to take out your balance is telling you the balance is not real. • AI-themed pitches are the smooth-returns pitch with a new excuse for secrecy. • Deepfaked voices and videos: verify through a channel you already control. • Fake platforms show invented balances and charge “fees” to withdraw. • A small successful early withdrawal is a trust-building step, not proof. Old tells in new clothes — “Our AI trades for you and never loses”: Smooth returns + secret strategy — Ponzi tells · A video of a famous investor endorsing a platform: Possibly synthetic — verify independently ← · An app balance growing every day: Means nothing until you can withdraw without paying

Sources

• Reported fraud losses in 2025, by categoryFederal Trade Commission, Consumer Sentinel Network data, testimony to the Joint Economic Committee (March 2026)
• Ponzi schemes, affinity fraud and pump-and-dumpsU.S. Securities and Exchange Commission, investor alerts and bulletins (Investor.gov)
• Checking a broker or an adviserFINRA BrokerCheck; SEC Investment Adviser Public Disclosure
• Relationship investment scams (“pig butchering”)FinCEN Alert FIN-2023-Alert005 (September 2023)
• How the Madoff fraud was missedSEC Office of Inspector General, Report No. OIG-509 (2009)