Investment Account Fraud and Financial Abuse

One of the most overlooked aspects of savvy investing is recognizing and protecting yourself against financial abuse and exploitation. While seniors and individuals with disabilities are frequent targets, anyone can fall victim to financial exploitation.

Reports of fraud in investment accounts have surged. According to the Federal Trade Commission, there were 107,699 cases of investment-related fraud in 2023, resulting in $4.6 billion in losses. This figure represents a record high and a 14% increase from 2022, with investment scams surpassing other fraud categories in terms of financial losses.

As a certified financial planner, I emphasize the importance of safeguarding oneself from such losses with clients.

Recognizing Financial Abuse and Fraud

Theft is alarming, but investment abuse can be even more distressing because you might play a role in the situation. You could authorize an investment, only to discover later that it was a poor decision.

Investment fraud comes in various forms, all designed to separate you from your hard-earned money. Here are some common types to watch for:

Promissory Note Scams
These are essentially IOUs from companies or individuals that promise fixed returns over time. Fraudsters entice investors with “guaranteed” returns, often linked to worthless or nonexistent assets.

Ponzi or Pyramid Schemes
Ponzi schemes use funds from new investors to pay returns to earlier investors, creating a facade of profitability without any legitimate investment. Pyramid schemes, on the other hand, depend on recruiting new participants to sustain financial flow.

Real Estate Investment Fraud
Real estate can be a sound investment, but fraud occurs when you’re promised high returns on properties that don’t exist, aren’t as described, or are grossly overvalued.

Cryptocurrency Scams
Scammers exploit the allure and complexity of cryptocurrencies like Bitcoin, using fake endorsements or “exclusive” tips to entice investors.

Social Media or Internet Fraud
Investors may be targeted through online platforms, emails, or even dating apps. Scammers often promote “foolproof” trading systems or “can’t miss” opportunities.

Elder Financial Abuse
This involves the misuse or unauthorized use of an older adult’s financial resources. The U.S. Department of Justice identifies it as one of the most common forms of elder abuse. Scammers often target seniors due to their accumulated wealth and perceived vulnerability, especially if they are experiencing cognitive decline or isolation.

I’ve witnessed elder abuse firsthand, from outright theft of money or possessions to more subtle forms of manipulation, such as pressuring seniors to alter their wills or grant power of attorney to unscrupulous individuals. The abuser is often someone the senior knows and trusts, like a family member or caregiver, which can make it even more challenging for the victim to seek help.