Six Red Flags That Signal a New Startup is a Fake Investment

How startup scammers push their fake investment and job opportunities: Internet Scambusters #780

Phony startup businesses are the new model for fake investment and job opportunities.

Big talkers pose as entrepreneurs to lure investors and job searchers into their lair, sometimes with no project substance at all or with half-baked, underfunded ideas that have no chance of succeeding.

This week, we pass on tips from a startup expert on how to spot them, as well as a refresher on general investment scam tactics.

However, before we begin, we first encourage you to take a look at this week’s most popular articles from our other sites:

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Protect Your Family with Simple Home Security Tips: Here’s how to protect your family and home from burglary without spending a dime.

Is a Gluten Free Diet for Everyone? Here are the basics on eating gluten-free and if it’s for you.

The Truth About Fast Food Restaurants: Let’s dissect some of those fast food myths you’ve been hearing about, one at a time.

Let’s get started…

Six Red Flags That Signal a New Startup is a Fake Investment

As we’re all reminded virtually every day, one of the downsides of the Internet is the ability to spread fake news quickly and easily.

Sometimes, it can lead to just being misinformed but, in other cases, such as fake investments or job opportunities, it can turn out to be extremely costly.

One of the newer lures is an invitation to invest in or join new startup projects, which comes via phony websites, emails and even snail mail.

Although admittedly risky, backing a startup or going to work for one with potential to be a roaring success is an attractive prospect to those with plenty of money, few responsibilities or a high tolerance for risk.

So, it’s a rich territory for scammers who are experts at putting together realistic sounding projects that actually have no substance at all.

Startup advisor Hillel Fuld knows their tricks only too well having been, by his own admission, tricked at least five times.

In one case, a scammer posed as an Apple engineer with a great product plan, only for Fuld to discover the guy had not only lied to him but also to his (the scammer’s) own family. He didn’t work for the leading computer outfit at all.

In another case, he recalls in a blog for Entrepreneur magazine, “An entrepreneur… came up with what was objectively a brilliant idea, then went and recruited 50 people who left top positions to join the company.

“He signed contracts with municipalities across the U.S., all based on the lie that he had money in the bank and a product that worked. He did not, and it did not. Everyone was out of a job and his lies induced losses of millions. People put their life savings into this venture.”

This is a more serious and widespread issue than most people realize, he says.

“My inbox is filled with stories of entrepreneurs who had term sheets from investors that simply had no capital, with PR agencies that had absolutely no resources or abilities to deliver on their promises, and yes, with startups that 100 percent fabricated numbers in order to close an investment.”

So, how can you spot these crooks before putting your hand in your pocket or agreeing to go to work for them? Fuld’s experiences suggest the following 6 red flags that could alert investors and potential employees to a possible scam:

  1. The scammer focuses on himself, talking incessantly and giving what Fuld calls a “rock star response” to every question about him, his product or his business idea.
  2. The offer — whether it’s an investment or a pay check — fits the “too good to be true” test. Just very occasionally, a genuine potential startup might offer a fantastic deal. Just make sure you do your research both on the product and on the financial strength of the entrepreneur.
  3. Don’t get maneuvered by clever sales talks. Con merchants are experts at manipulating conversations, directing their victim into their trap. If the entrepreneur is overtly “sell, sell, selling” all the time, then beware!
  4. The scammer drops well-known names into their patter. They may be well-known business or celebrity names. Or they may be entirely invented names but with a tag attached that suggests they’re big business guys. And they all want to back him. Check these names out carefully.
  5. For new employees, the first paycheck doesn’t show up. Okay, you may already have burned your bridges by going to work for the scammer, but don’t listen to no-pay excuses. It’s too early for the business to have run out of money — unless they didn’t have any in the first place. It’s probably time to bail out.
  6. Excuses roll out like a production line. Scammers are great at making excuses when things go wrong or required information isn’t forthcoming.

“If you do reach the painful conclusion that this is indeed a scam, confronting the person scamming you is ok; trying to reason with them is absolutely pointless,” Fuld advises.

“These people don’t think logically… Remember, their sole goal is to avoid getting caught.”

Motley Guide to Investment Scams

Staying with the theme of investment scams, respected online investment site The Motley Fool has recently published an online guide to investment scams for retirees.

These have mainly been covered in previous Scambusters issues, but it’s worth reminding ourselves of them:

  • “Risk free” investments don’t exist, so don’t believe anyone who offers you this kind of deal.
  • Be equally cautious about investments that promise a high return with a low risk. Highly unlikely.
  • Ignore “act now” offers. They put you under pressure but genuine investment opportunities are not time-limited unless the deadline is way in the future.
  • Celebrity endorsements. Check out the claims carefully and find out if the endorsement is genuine and whether the celebrity is being paid for it.
  • Free “investment seminars.” Just ask yourself why it’s free. That should get your skeptic’s antenna twitching. That free dinner might sound enticing but be prepared for a high-pressure sales pitch.
  • Stocks being pushed cost less than $5 a share. Small and low-cap firms don’t have to provide the same level of financial detail as larger outfits, so you’ll struggle to get reliable information.
  • Recommendations come from an unlicensed financial advisor. Unlicensed? Enough said. Check their credentials.

Alert of the Week

There’s a new version of the scam that claims you can find out who’s been checking your Facebook page.

It’s a sinister trick in which you’re invited to type “following me” into the Facebook search box on your page.

The claim is that you’ll get a list of people who are secretly following you. But what you get is a list of users all with the term “following me” in parentheses after their names.

Some are linked to highly dubious websites but what the game of others is not clear.

It remains a simple fact that it’s not possible to find out who’s been looking at your page of postings, even among those who actually do follow you unless they like, share or comment on something you’ve posted.

That’s it for today — we hope you enjoy your week!