Three Ways Con Artists Use Psychology to Scam Investors and How to Turn the Tables
The Better Business Bureau recently released a set of five psychological tactics con artists use to scam unsuspecting investors out of their savings. These included “The Social Consensus” Tactic, which is highly popular with affinity fraudsters, and the “Phantom Riches” Tactic, which all con artists seem to love. (For more information on these tactics, read this article entitled "The Psychology of Investing Scams" on US News.)
In an effort to help investors steer clear of investment fraud, I’ve put together a few helpful tips on how to spot con artists' psychological tactics and turn the tables on the fraudsters who use them.
Combating the “Scarcity” Tactic: Otherwise known as a high-pressure sales tactic, the “scarcity” tactic uses key phrases like “limited supply,” “have to act now,” and/or “there are only ___ units left,” to create a false sense of urgency and convince you to fork over your funds before you’ve had a chance to do your research. Never give in to this tactic!
Instead, end the conversation. Say, “I’m sorry, but I won’t invest in anything until I’ve read the prospectus or offering statement and discussed this opportunity with my ___ [trusted, non-biased third party].” If they won’t back down, simply say: “No, sorry. I’m not interested.” Then, walk away or hang up the phone.
Combating the “Source Credibility” Tactic: This tactic involves a promoter or sales person’s claims that he or she is highly esteemed in the field, possesses special credentials, or has unique experience at a highly reputable firm. It’s often brought out by slick con men who are great at appearing to be something they’re not.
To combat this tactic and protect yourself from fraud, ask questions.
Get the details on when the solicitor was licensed by FINRA, the SEC, and/or your state securities regulator, and when and where he or she supposedly worked at the “highly reputable firm.” Also, ask for the exact name of the credential he or she claims to possess and which organization is responsible for dispensing it. Then, independently verify the information. (Fortips on researching a promoter or solicitor, read this.)
Combating the “Social Consensus” Tactic: Think of this as the “Don’t-you-want-to-jump-on-this-bandwagon?” approach. A particular favorite of affinity fraudsters, this tactic could take several forms.
First, a promoter or solicitor could try to use a well-known person as a purported spokesperson for the product or opportunity by saying something along the lines of “This is how ___ got his start,” or “___ just signed up yesterday.” Or, you might hear something along the lines of “I know it’s a big decision, but I’m in – and so is my best friend, and my father, and half of my church.” Finally, a solicitor or promoter might target you specifically because of some affiliation or relationship you have, and use a person close to you or a leader in your group to lure you into the investment scheme. You might hear, “I just offered this to ___, and he/she thought you might be interested,” or even “Come on, your own ____ (pastor, boss, mother, etc.) is in on this.”
Don’t be fooled! Just like the “Scarcity” tactic, the “Social Consensus” tactic is designed to get you to fork over your funds first and ask questions later. Instead, take the time you need to ask questions, research the opportunity, and discuss your decision with a qualified, non-biased third party.
Following these tips won’t keep you safe from all the con artists or investment schemes out there, but it’ll go a long way toward helping you prevent investment fraud.
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