Investment Scams

Investment Scams are schemes that use lies and misrepresentation to procure investments in a company or product, with the promise of high returns. These scams can fall apart rather quickly and often leave investors with sizable losses. Common examples of investment scams include:

Pyramid Schemes

A pyramid scheme generates profit by recruiting more and more participants. The true nature of these schemes is often concealed by the sale of products or services. But the profitability of this model relies on the recruitment of new members, making pyramid schemes unsustainable in the long-run. Some examples of pyramid schemes include eAdGear, Wealth Pools International, and Big Co-op Inc. Such schemes have caused investors to lose substantial amounts of money.

Ponzi Schemes

Ponzi Schemes are investment scams that use money from new investors to pay off old investors. While these scams boast high returns, they usually collapse as soon as new investors are not available, or existing investors ask to cash out. Some examples of Ponzi Schemes include schemes ran by Charles Ponzi and Bernie Madoff.

Ponzi Schemes vs. Pyramid Schemes share important similarities, but there are also key differences. Learn more.

EB-5 Investment Fraud

EB-5 Investment Fraud is a scheme that seeks to exploit the Immigrant Investor Program. The scheme targets foreign investors looking to gain a green card or permanent U.S. residency. EB-5 schemes claim to offer legitimate qualifying investment opportunities, but are often run by illegitimate businesses that put investors at risk of losing both their investment and their chance at obtaining a green card.

Real Estate Investment Trusts

Real Estate Investment Trusts, or “REITs,” are investments which pool the funds of many small investors into one large fund used to invest in various real-estate holdings. These investments have often been marketed as low-risk, high yield investments. FINRA and the SEC, however, have increased scrutiny into the marketing of these investments, as many investors have reported being unable to redeem their shares, becoming stuck in uncertain investments.

According to FINRA, there are six key steps you can take to identify and avoid investment scams.

1. Verify the person’s or company’s credentials. Verifying someone’s credentials is very simple and quick to do. FINRA’s BrokerCheck tool is one resource to get background information on brokers and investment advisors.
2. Be wary of investments that boast high profits or returns with low risk. According to FINRA, every investment involves risk.
3. Be aware of investment pitches that claim, “everyone is doing it.” Pitches should focus on the actual investment; not how many people are investing.
4. Don’t let your advisor or broker rush you. Sound investments will not disappear overnight; be wary of anyone who tells you their investment is for a “limited time only.”
5. Don’t feel obligated to invest simply because the investment advisor or broker has given you something for free. Advisors often give you perks in order to guilt you into investing.
6. Gather as much information as possible. The more information you have about investment scams, the easier it will be to spot one.

Since its inception, Gibbs Law Group has been on the forefront of investment fraud prosecution. We have recovered damages in cases alleging a variety of frauds and scams, including:

Medical Capital Litigation

This class action was brought on behalf of investors who suffered from an investment scam by four different financial entities. These entities disguised Medical Capital notes as reliable investments for their clients, which later turned out to be investments in a Ponzi Scheme. Gibbs Law Group served as Co-lead Council on this case and secured a settlement of $80 million on behalf of investors.

Towers Financial Corporation Noteholders Litigation

Gibbs Law Group served as liaison counsel in this class action brought against promoters and professionals who falsely marketed Towers Financial Corporation’s promissory notes. The Securities and Exchange Commission described this failed investment scam as the “largest Ponzi scheme in U.S. history.”

American Express Class Action Lawsuit

This class action as brought against American Express Financial Advisors who claimed to offer financial planning and advice tailored to client’s specific circumstances. In reality, these advisors provided “canned” financial planning, and gave clients general advice meant to direct them to specific mutual funds. Gibbs Law Group helped secure a $100 million settlement on behalf of American Express clients in this case.

Auction-Rate Securities Class Action Lawsuits

Gibbs Law Group served a co-lead counsel on a number of lawsuits against banks and broker-dealers who misrepresented the liquidity and risks of auction-rate securities. This misrepresentation resulted in the collapse of the auction rate securities market. The lawsuits helped spark the interest of state regulators, and many Wall Street firms eventually agreed to re-purchase auction rate securities from investors who bought directly from the banks.

H&R Block IRA Class Action Lawsuit

Gibbs Law Group served as co-lead counsel in a class action lawsuit against H&R Block. The case alleged that the company mislead customers in the sale of “Express IRAs.” Our law firm helped acquire a $19.4 million settlement to repay the fees charged under the Express IRA program.