Scams come in all shapes and sizes but share the same goal: to take someone’s hard-earned money. At KoreConX, we talk a lot about the importance of compliance with the regulations, because our platform is built to make it as easy as possible for companies to raise capital compliantly. But we haven’t talked all that much about why the regulations themselves are so important, and one of the main reasons is to protect against scams. In this and future posts, we’ll discuss some general and specific scams and their effect on investors and issuers.
The internet has made it easier for criminals to reach potential victims, but compliance with regulations is an excellent protection against potential scams out there such as identity theft and investment fraud. There are, of course, many sorts of scams that the SEC regulations don’t directly touch, but understanding the reasons for the regulations can help you adopt best practices that will protect you against other scams as well.
Regulations such as KYC (Know Your Customer) and AML (Anti Money Laundering) require participants to be properly identified – this alone can cut out much fraud before it even starts. Simply put, bad actors cannot be held accountable if they cannot be identified, so they often try to use a fake identity, or steal someone else’s. Similarly, companies seeking investors must make available financial and other information, an offering circular, and other data available, so potential investors know their money is going to an actual registered company with identified directors and officers.
Who is Affected by Scams?
Scams hurt almost everyone indirectly by adding mitigation costs, driving up insurance premiums, and harming investor confidence, but the most obvious damage is financial: Online fraud in 2022 accounted for $41 billion stolen globally, with this number expected to rise to $48 billion in 2023. The burden of this loss does not fall evenly across all age groups. Adults between the ages of 20 and 29 reportedly have the lowest loss per person, at $2,789. Individuals in their 50s suffered the highest losses on average per person, with a total loss of $9,864 each. Those in their 30s lost an average of $5,570 each, and those in their 40s lost $7,832. Interestingly, the data shows that, on average, older Americans lost the most money to online fraud.
It may be that younger people may have lost less money on average simply because they have fewer financial assets. However, the report emphasizes that it is important to take these figures with a pinch of salt, as the FBI’s numbers include businesses, which can suffer much greater losses than the average person. Nonetheless, these statistics highlight the importance of online safety and the need for targeted prevention measures for different age groups.
Scams to Look Out For
There are many scams to be aware of, especially online, here are just a few of them:
Phishing: Phishing is sending deceptive emails or messages that appear as though they’re from a legitimate source to get personal information. You may receive an email asking for sensitive information, such as your credit card number or bank account details. The scammers use this information to make fraudulent purchases, withdrawals, or transfer funds. Cybercriminals may also try to use phishing emails as a way of getting you to click on malicious links that will download malware onto your computer. Malware can be used to steal personal information and passwords or even lock up all the data on your computer until you pay a ransom.
Pyramid Schemes: Pyramid schemes are a form of fraud that involves promising participants large returns for recruiting others into the scheme. Despite the promises, none of the money invested by new participants ever makes it back to them. Instead, it is funneled upwards to those already in the scheme, who will eventually take all of the money and disappear.
Crypto Schemes: Many investors are eager to get in on the crypto market, but the crash of FTX reminds us of the importance of due diligence. New technologies are always especially rich breeding grounds for scams, when people don’t wait to find out how it actually works because they are afraid of missing out on the next big thing.
What Can You Do To Protect Yourself?
The best way to protect yourself from scams is by educating yourself about them and being aware of potential signs that something might not be legitimate. Here are a few tips you can use when someone contacts you:
- Verify the identity of anyone who contacts you. Do not send money or account details until you have verified their identity.
- Be suspicious if someone is asking for personal information, such as passwords or bank account numbers. Legitimate businesses and organizations should never ask for this type of information via email or phone call.
- Be wary of any offers that seem too good to be true. If someone is offering you something for free or an unbelievable return on investment, it’s likely a scam.
- Research the company or individual before making any investment decision. Look at reviews from other customers and check with the Better Business Bureau if necessary.
- Don’t give out personal information online. Be cautious when sharing your name, address, or other identifying details on websites, as this can make you a target for scammers. This includes answering “just for fun” quizzes on social media that can be used to figure out your mother’s maiden name, the name of your first pet, and other likely security questions.
The best way to protect yourself from scams is by staying informed and knowing the warning signs of fraudulent activities. Keep following this series on scams to learn more about different types of scams and how to protect yourself from them. If you have any questions or topics you’d like to see discussed in more detail, please reach out and share your ideas with us!