The allure of the stock market can be irresistible, especially when it’s on an upward curve, with high returns tempting both new and seasoned investors alike. But, despite the stock market highs, falling for scams promising assured returns remains a risk for retail investors.
A case involving two individuals in Assam recently made headlines when the accused duped many unsuspecting investors of their money.
Assam’s Online Trading Scam
Earlier this month, Assam Police nabbed two people who were involved in an online trading scam that robbed investors of significant sums of money. The scammers exploited the stock market’s strong performance and created a deceptive online trading platform offering ‘guaranteed high returns’ on stock market investments.
Many people were lured into this fraud with the promise of secure profits, regardless of market volatility.
The accused in this case, Vishal Phukan, 22, from Dibrugarh, and Swapnil Das from Guwahati, allegedly lured investors with guarantees of 30 per cent return on their investments within just 60 days.
According to media reports, Phukan, who allegedly used his luxurious lifestyle to lure investors, had established four fake companies, invested in Assamese cinema, and acquired several properties as part of the scheme.
How Does This Scam Work?
The scammers typically used two tactics to fraud people.
1. Stock Market Highs: The scammers will use stock market highs to give a false sense of high returns. They will exploit the high running days without explaining the market volatility.
2. Guaranteed Returns: Playing on the ‘greed’ card, the scammers will then lure investors on to their platforms through ‘WhatsApp communities’ where they typically make false promises of ‘guaranteed returns’.
In addition to this, they also devise other fraudulent schemes that follow a specific modus operandi to defraud people. Here are some of the schemes that you should be watchful of.
3. Pump and Dump Scheme: The scammers will first artificially inflate the price of a stock by spreading false or misleading information. They would do this to create a ‘buying frenzy’. Once the price peaks, they would sell off their shares at inflated prices, leaving other investors at a loss. This is also known as ‘short-selling’. The scammers who operate on fake investment platforms hide behind such schemes, roping in unsuspecting investors into the game.
4. Ponzi Schemes: This is mostly used by fraudulent platforms, wherein the scammers give returns to earlier investors using the capital received from newer investors, rather than generating profits through legitimate investments. When the funds dry up, the scheme collapses, leaving new investors wanting high and dry.
In the Assam Online trading scam, investors were lured onto a ‘trusted’ fraudulent trading platform which showed a neat interface, promised expert guidance, and presented fake testimonials.
Many investors believed their money were in safe hands, particularly during a time when the stock market was performing well. As more people kept pouring money into the scheme, the operators paid initial returns, giving the illusion of legitimacy, while the majority of investors lost their entire investments. The platform eventually stopped processing withdrawals, which revealed the true face of this fraudulent scheme. In such cases, victims are often left with little legal recourse to get their money back, since such companies are neither registered nor regulated.
Eventually, Assam Police stepped on to the scene, leading to the arrest of the two main perpetrators, exposing how they duped unsuspecting investors with fake promises of guaranteed returns.
How To Avoid Falling For Such Scams?
Sumit Duseja, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA) and founder and CEO of Truemind Capital says that one should exercise caution the moment someone guarantees return on stock market investments.
“According to Sebi guidelines, it is illegal to guarantee returns on investments. Since capital markets are volatile, it is impossible to guarantee returns. If someone is guaranteeing astronomical returns, they don’t need to take your money. They can borrow from banks and multiply that money to become super wealthy,” says Desai.
Further, one should always should always deal with Sebi-registered entities for advice, he adds.
“People end up losing money when they become greedy and feel that making money is easy. Always remember, if it’s too good to be true, it probably is (not),” he says.
Here’s what you should do:
Research Before Investing: You should always verify the legitimacy of the investment platform or advisor you are dealing with. Look for regulatory confirmations, such as Sebi registration, or certifications, such as a certified financial planner (CFP).
Beware Of High Return Promises: Stock market investments are always subject to market risks. You should be cautious of anyone offering you assured or guaranteed ‘high’ returns. It is definitely a red flag if they are trying to sell this to you in a short period.
Avoid Emotional Investments: The scammers will leverage emotional appeal associated with market investments. They will trap you in with the ‘fear of missing out’ or greed when the market is on a high. However, you must maintain a rational, long-term investment strategy before investing in the stock market. Make sure your goals are practical and not based on emotional feelings of making quick money.
Check Platform Reviews and Testimonials: As an investor, you should check the reviews, testimonials, and regulatory registrations of any online platform before pouring your money through it. Scammers will often try to fabricate positive testimonials, but make sure you search the Web and check in with your peers for first-hand reviews and testimonials.
Avoid Putting All Eggs in One Basket: Diversify your investments across multiple asset classes and avoid concentrating your funds in a single platform or asset class, no matter how promising it sounds.
The pull of guaranteed returns can be tempting, since everybody wants to make money quickly. It is, however, important to remember that the stock market comes with its own set of risks. There are no shortcuts to wealth creation, and anyone promising otherwise is likely leading you into a trap.
