Investing money online is now quicker and easier than ever before. You’re often just a click away from investing your hard-earned cash into something that promises great financial returns.
It’s as simple as that. Or, is it…?
All types of investments carry some risk– it’s not just the stock market you need to keep an eye on, but also who and what you’re investing in.
There are a number of clever, well-thought-out investment scams that aim to catch out people who try to “get rich quick.” From Ponzi schemes to advance fee scams, investment scams are often cleverly disguised amid a whole host of other legitimate offerings.
Here at Comparitech, our estimates suggest that just under 90,000 Americans were subject to investment fraud in 2021 with losses totaling almost $1.6 billion.
According to our findings, the number of reported investment-related scams increased by more than 82 percent from 2020 to 2021 (from 49,067 to 89,518) and the amount lost increased by more than 246 percent (from $455 million in 2020 to over $1.58 billion in 2021).
The Federal Trade Commission (FTC) describes social media as a “gold mine for scammers” with 54 percent of investment fraud losses originating on these channels. The top platforms identified in these reports were Instagram (36%), Facebook (28%), WhatsApp (9%), and Telegram (7%). In 64 percent of these cases, cryptocurrency was the method of payment with the FTC also noting a “huge surge” in bogus cryptocurrency investments (something we’ll explore in more detail below).
To get a clearer picture of the extent of investment scams on a state-by-state basis, Comparitech analyzed data from the Internet Crime Complaint Center (IC3), Federal Trade Commission (FTC), Better Business Bureau (BBB), and the Financial Crimes Enforcement Network’s (FinCEN’s) Suspicious Activity Reports (SARs) from 2019, 2020, and 2021.
- 89,518 people were estimated to have fallen victim to investment scams in 2021–an 82 percent increase from 2020 (49,067)
- Losses from these scams hit an estimated $1,575,605,445 – a 246 percent increase from 2020 ($455 million)
- The IC3 saw a 170 percent increase in the number of investment-related scams reported from 2020 to 2021, rising from 5,319 to 14,381 cases. The amount lost to these scams increased by almost 333 percent (from $237 million to $1 billion)
- BBB data showed an 18 percent increase in investment scam reports (from 272 to 322) but did record a 52 percent decrease in the amount lost (from $2.64 million to $1.28 million)
- SARs case figures increased 14 percent from 23,029 in 2020 to 26,206 in 2021
- The reported median loss for investment scams reported by the FTC has almost doubled from $1,550 in 2020 to $3,000 in 2021
States with the highest rates of investment scams per 100,000 people
The states with the highest number of investment scams are also the most populous of the United States, so there isn’t much surprise with the figures. However, if we take a look at the rate of investment scams per 100,000 people, we can see that the top states aren’t the highly-populated ones. Rather, the states with the highest rates of investment scams are:
- Nebraska – 348.03 investment scams per 100,000 people
- Connecticut – 101.97 investment scams per 100,000 people
- Rhode Island – 60.96 investment scams per 100,000 people
- Massachusetts – 42.86 investment scams per 100,000 people
- New York – 38.54 investment scams per 100,000 people
As the above map also shows Nebraska is the only central state with high figures. The remaining high numbers come from Northeastern states.
States with the highest number of investment scams and losses
The top five states for the highest number of investment scams and losses are:
- California – 12,793 investment scams with a total loss of $346.6 million
- New York – 7,785 investment scams with a total loss of $159.8 million
- Nebraska – 6,827 investment scams with a total loss of $104.1 million
- Florida – 5,940 investment scams with a total loss of $104.1 million
- Texas – 5,644 investment scams with a total loss of $117.5 million
States with the highest and lowest average loss per investment scam
Despite their high number of scams, only one of the above states made it into the top three highest average losses per scam (according to IC3 2021 data). The states with the highest average loss per investment scam were:
- Oklahoma – $214,639
- Vermont – $206,722
- North Dakota – $155,675
In contrast, the states with the lowest averages per investment scam were:
- Maine – $9,177
- West Virginia – $11,956
- New Mexico – $15,637
Investment scam cases and losses see huge increases in 2021
According to our findings, investment scam cases nearly doubled last year while losses were almost three times the amount lost in 2020.
In 2021, the FTC alone received 78,988 reports of investment scams, an increase of 194 percent from just 26,912 reports in 2020. The amount lost to these scams has nearly tripled in a year with $420.4 million lost in 2020 compared to over $1.67 billion in 2021, an increase of almost 300 percent.
Please note: The total investment scam figures reported by the FTC and IC3 are always higher than the total of our individual state figures. This is due to some reports not being assigned to a specific state due to a lack of location data.
Interestingly, as we’ve already noted, the FTC saw a huge surge in investment scams involving cryptocurrency. According to its report, bogus investment opportunities involving crypto skyrocketed from October 2020 (to March 2021), with almost 7,000 reports of these scams and a total loss of over $80m. This represented a 1,000 percent increase in losses from the same period the year before.
The reported median loss to these scams was $1,900, which, while lower than the average investment loss in 2021 ($3,000), was higher than 2020’s average investment scam loss ($1,550). Over the course of 2021, the losses to cryptocurrency investment scams could have increased even further. This is demonstrated in the Q4 2021 statistics available through the FTC (for all fraud types) whereby $294.1m was lost in 13,383 fraud cases involving crypto, creating an average loss of $21,976.
The IC3 witnessed a similarly large increase in investment fraud cases.
From 2020 to 2021, the IC3 noted a 134 percent increase in investment scam reports (from 8,788 to 20,561), more than doubling figures. The amount lost to these scams saw an even larger increase, by 333 percent (from $336.5 million in 2020 to $1.46 billion in 2021). The highest average amount lost was achieved in 2021 with $70,811 lost per scam compared to just $38,287 in 2020.
For SARs, the number of reported cases jumped nearly 14 percent from 2020 to 2021 (23,029 cases in 2020 and 26,206 cases in 2021). Our estimates suggest victims who reported their investment fraud to SARs could have cumulatively reported losses of more than $401 million (an increase of 119 percent, from $183.2 million estimated for 2020).
Reports of investment-related fraud at the BBB saw a larger increase from 2019 to 2020, rising 35 percent (from 201 to 272). A further increase of 18 percent (up to 322) was noted in 2021, with losses of $1.28 million.
All four reporting avenues show a similar picture when it comes to investment-related fraud increasing each year. 2021 has been a record-breaking year, with the possibility of even more investment scams to come in the next few years.
The only data available for 2022 so far is in FinCEN’s Q1 SARs report. From January to March 2022, 4,312 investment-related SARs were filed. While this is slightly less compared to 4,917 reports in Q1 2021, this doesn’t necessarily suggest a decreased trend for 2022. As we can see from the FTC chart above, investment scams tend to see the greatest increases toward the end of the year.
The true cost of investment scams in 2021 could have been over $2.5 billion
While the figures mentioned above make for a shocking read of just how destructive investment scams have been, it’s possible they could be even higher with many scams going unreported.
A report conducted by the FTC found that only 62 percent of cases are reported when it comes to investment-related fraud. Based on the reported figure of 89,518 people being the victim of an investment scam and this only representing around 6 in every 10 cases, this would imply that nearly 144,900 people may have been subject to investment scams in 2021. And based on the total reported losses (of known cases) being $1.58bn, that would equate to total losses of around $2.54 billion.
What are some popular investment scams and what are the key warning signs to look out for?
The Suspicious Security Report (or SARs reported to the Financial Crimes Enforcement Network–FinCEN) highlights specific types of investment fraud. It found the most popular scheme (excluding a category labeled ‘other’) in 2021 to be advanced fee scams, which accounted for 4,706 reports. Other categories include market manipulation (4,127 reports), and insider trading (3,417 reports).
Below is a list of definitions for some well-known investment scams to be aware of:
- Advanced Fee – occurs when you are asked to invest a small upfront payment with the prospect of earning a greater value but instead are left with nothing.
- Insider Trading – Through the use of confidential information, an individual would illegally trade on the stock exchange to benefit themselves.
- Market Manipulation – Is the practice of someone who artificially affects the stock prices to rise or fall dramatically.
- Misappropriation – Is essentially the same as theft, or using someone’s investment funds for a purpose that was not pre-agreed.
- Ponzi Scheme – Uses current investors’ money to pay previous investors.
- Pyramid Scheme – Each paying participant is asked to recruit two further participants, with the returns made from the later participants given to the original ones. Similar to the Ponzi scheme but uses the investment victims to recruit further victims themselves.
- Unauthorized Pooling – Or “unauthorized mutual funds” is the illegal collaboration of investors to benefit from a larger amount to invest.
- Wash Trading – Often brokers and traders can join forces and feed misleading information to the market for their own financial gain.
- Cryptocurrency Schemes – Crypto investment scams cover a multitude of the aforementioned schemes, while often being a popular payment method in these scams, too. For example, the FTC has noted an increase in crypto-related investment scams with people sharing “tips” in a bid to get people to invest in the schemes, which are, in fact, based on referral chains (a type of pyramid scheme) that see people bringing in more investors.Other scams include websites that are built to look like legitimate investment sites (even showing users’ growth in their investment) but when users go to withdraw anything they’re told to pay more crypto and end up with nothing. Some have even been known to enter giveaways with “celebrities” within the crypto space only to find the crypto they’ve sent hasn’t been multiplied as promised but has gone straight into a scammer’s wallet. The FTC saw victims sending at least $2m to Elon Musk impersonators in the six months before the report was produced.
If you are planning to invest your money online, and want to do so safely, be wary of who you’re handing your money over to, and look out for these key warning signs that might suggest a scam:
- If it seems too good to be true, like all types of scams, it probably is.
- “Guaranteed returns”–many scammers may use this term to suggest a low level of risk when partaking in their investment plan, but all investment options come with at least some risk, so guaranteed or “risk-free” returns are often a false claim.
- Ask questions, fraudsters will often try and rush you into settling a deal. Instead, make sure you take your time and ask numerous questions about any doubt you may have.
- Research as much as possible before investing money, the more research the better.
- Look out for key phrases such as “everyone is buying it.” Is the scammer suggesting that everyone is buying their product? This is often a red flag for investment scams.
- If anyone asks for money to be sent right away and you feel rushed to make a decision, resist the urge to “pay now” and check the reliability of the source.
- Check for unregistered products, many scammers are selling fake products online so doing a quick Google search to confirm the product is real can help protect your investment.
- Avoid complex investing strategies, legitimate investing professionals will be able to define clearly how their system works.
If any of these have happened to you during your time spent investing money, you can protect yourself by:
- Responding with a firm ‘No’. Don’t be afraid to say no to someone you suspect might be a scam.
- Speak to someone else and get their opinion on the investment.
- Protect all personal details and social media sites. Never give away any personal information and make sure you have two-factor authentication for social media log-ins.
- Looking for any reviews or similar scams online to the one you might be experiencing to see if it is a common scam.
- Block and report anyone you suspect is an investment scammer.
To get overall figures for all 50 states we put together data from the IC3, FTC, BBB, and SARs for 2021, and also made note of 2019 and 2020 figures to track percent increases.
IC3 Data: Data categorized as “Investment” scams.” Reports are reviewed and researched before being passed on to federal, state, local, or international law enforcement or regulatory agencies.
FTC Data: The FTC doesn’t provide a full breakdown of state-by-state figures for investment scams and instead lists the top 15 states with the highest-ranked reports per million of the population. We made estimates for the other states by finding the average number of cases by the population total for each state.
For example, in Alabama, the population is 5,024,279 and the average number of cases for each state’s population came out to be 0.00014, which made the estimated number of investment fraud cases for Alabama 703.
The FTC reported a median loss of $3,000 which was then multiplied by the case numbers to get an estimated total $ amount lost. For Alabama, the estimated loss is $2,110,197. This was then applied to every state where data wasn’t provided.
BBB Data: Data categorized as “Investment” scams and submitted against companies – i.e., fraudulent investment sites, scammers posing as professional traders on social media and asking for advanced fee payments. Complaints were investigated by the BBB.
SARs Data: The data from SARs provided the number of cases but not the $ amount lost per scam. To estimate the $ amount lost by state, we averaged figures from the IC3, FTC, and BBB to get an average amount lost for all states by year.
For 2021, for example, the average $ amount lost per scam across IC3, FTC, and BBB was $15,306, so this amount was multiplied by the SARs number of cases for 2021. Alabama, for example, reported 66 investment fraud cases in 2021, an estimated loss of $1,010,196.
State populations: https://data.census.gov/cedsci/all?q=Population%20Total&g=0400000US02
Data researcher: Charlotte Bond