You get a phone call from a Mr. Davis of Mutual Systems, Inc. Surely you've heard of Mutual Systems? Of course you have.
Mr. Davis is a nice man. He's concerned about your finances, and he asks if you've given any thought to your financial future. He would love to help you out, and he happens to have some hot, top-secret, inside information about a mobile device that Mutual Systems is releasing soon, a product that will change the way you see the world. He tells you the stock is cheap right now, and you have to act now or you'll miss out on making a lot of money -- money that will help secure your future.
"You can't lose," Mr. Davis says.
But you do.
You weren't the only person Mr. Davis called that day. Mr. Davis and his associates contacted hundreds of other people. And even though Mutual Systems is a legitimate company, its stock is not heavily traded. As it happens, the value of a so-called "thinly traded" stock is easy to boost with a burst of buyer action. And after the value does indeed skyrocket, the scammers quickly sell their shares. The value of the stock plummets, and there goes your money.
Most investment scams use the same basic principles: promises of great profit, assurances of no risk and assertions of urgency and secrecy. The con artist is likable, friendly and professional.
A lot of people think they can spot a scam from a mile away. But most scams aren't as obvious as the pushy salesman calling out of the blue or the notorious Nigerian bank account scheme. Every year, Americans lose billions of dollars to scams of every size and shape [source: National Futures Association]. Every citizen is a potential target.
So what schemes are lurking out there? Why do they succeed time and time again? How do you avoid them?
First, let's take a look at the top 10 investment scams.