Alternative Investment Schemes to Watch Out For


Alternative investments offer incredible capital gains that outpace most modes of traditional markets. Investors know that there are more inherent risks with alternative investing, barring any schemes or scammers. That is why it is imperative for investors to know whether or not their potential investment they’re going to be entering into is a scam or not.

Investment scams are not unique to just the alternative investment space, they invade all levels of the market, costing investors billions of dollars a year. In this age of globalized connectivity, investors are increasingly subjected to different forces that offer promising returns and minimal effort, all they need is an upfront investment that the investor puts up; in the case of a scam that is the last time they’ll see that money.

These con artists study their markets and will do everything in their power to look legitimate. Often they will mix and mingle different real strategies to hide the usual features of a scam. There are a select few features to look out for in these various “investments” that are fraudulent. Each varies a little bit according to the alternative investment in question.

Features of an Alternative Scheme

In the regular stock market there are of course a host of ponzi schemes that come to light in the news cycle, unfortunately for alternative investors, they must do their due diligence in protecting themselves and being informed.

Steps of A Scheme:

The Hook – Sham websites will pop up offering the investor the supposed “that’s it” deal, showing how much money certain investors have made because of their firm or strategy. This will be followed up by bogus testimonials and presumed experts. The difference between a credible deal and a false one is in the semantics of phrases like “guaranteed returns of (certain percentage) or more”, these are tell tale signs, as no investment is ever just that easy and predictable.

The Temptation- After they’ve given the potential investor a guarantee, the call to action will call for spontaneity and quickness, so that they won’t miss out on this deal that is crucially dependent on “timing. This is a major red flag.

The Deposit- If the scammer has caught the investor in their web, then it’s time to be either strung along paying monthly investments or a lump sum; all of this dependent on what type of scheme it is.

Types of Fraudulent Investments

Fine Wine Schemes:

Investing in the finer things that life has to offer sure has its benefits. But like any good thing there is always a dark side to look out for. The first step to look out for is any sort of cold call that isn’t properly vetted.  Applying the three steps of a scheme to Wine, it’ll go something like this dependent on your current state of investment in wine. Many fraudsters will offer selling you a stake in wines that have yet to be released on the market, which is known as en primeur. Done through a certified broker or wine auction house this is a great way to make money, but through a fraudster it becomes a perfect opportunity to utilize the two to three year time period. Then they are free to take investors money and disappear into the night, never to be seen again.

If for some reason you already own the wine and are offered a deal by some firm to sell it, be wary. As they may say that this is the time to sell right now as there is a buyer who wants it right away. Stay away from these deals unless done through certified vendors and auction houses.  These types of scams can be applied to all sorts of liquor investments. By utilizing fine wine indexes an investor can utilize the price points in order to not be taken advantage of and whisked away into a scheme that is just too good to be true.

Timber Investment Schemes:

There have been many different Timber investment scams that have otherwise called into question a profitable alternative investment. Some of these firms have been caught in and around the United Kingdom, who are under investigation for defrauding investors. They had some of the tell tale signs of a fraud promising guaranteed payouts of 10% annually on all amounts of investments. For entry, the cost was around $7,500 that guaranteed a tenth of a hectare allotting up to around over 100 trees.

This price is highly overvaluing the land. The scammer’s reasoning behind this is for what they call administrative and marketing fees. This suggests a degree of scam-ability and is a definite red flag. In order to seem legitimate they will point towards past price projections to guarantee these returns. Any firm that sets a static number is something that shouldn’t be trusted.

Like all markets, there is volatility and fluctuation included in the timber market as well.  It’s good to know what type of wood form the company plans on investing the money in, be it raw logs, farmed trees, or already processed timber ready for sale. For a complete timber cycle, gains are reasonable between 5-10%. Determining a proper timber investment has a lot to do with whether or not there is a degree of liquidity for new entry investors.

Precious Metal Schemes

Different types of coins and precious metals are an established industry that offers a lot of growth. But there are many established ways to scam potential gold buyers through coins. One of the easiest ways is by not correctly showing the grade of a specific coin, denoting an inferior one to be worth more than it really is.  Different grades are based off what is considered mint condition, MS-70. Anything below that is not perfect and can be hundreds to even thousands of dollars cheaper.  If a coin can’t be inspected closely and is in a sort of protective casing, it could actually be a gold-copper alloy. Always be prepared to look at the physical product or if going through an online source, consult verified and reputable dealers.

The Lengths Scammers Will Go

Investment fraud is done through many advanced methods as it deals in higher end concepts most people don’t understand. Any claims to secret formulas or guaranteed returns are tell tale signs, paired with looking out for the three steps schemers will use. But the problem lies in the real tricksters. If an investor has been scammed once and didn’t take the proper preemptive measures, they’ve just entered a list, an easy prey type of list. The same group of people who just scammed an investor are going to be the first ones offering to help them recapture their money through even more convoluted means or advisement.

It’s best to cut any losses here if an investor has been duped. But if retribution is sought after, then it’s best to get the proper legal advice and team if an investor wants to take out these fraudsters from scamming more innocent investors.

Legal Action

If an investor did their homework but still fell prey to a scam then it’s a lot of the time on them and their fault. But in the case of being able to recoup some money, lawyers and specialized finance teams will be able to build a case if the proper evidence and drive is there to do so.

There are a vast amount of law professionals who are looking out for their customers’ best interests in the event of them falling for an investment scheme. Often these firms will represent their client on a contingency fee basis, meaning that legal fees may not be charged until the client has received their money back from the fraudsters.

Preemptive Measures First

Ideally, it’s in an investor’s best interest to not be sucked into a scheme into the first place. There will always be money lost in the world of alternative investing, but it should be because of the market fluctuating or human error rather than a typical scam. To put it plainly, look out for deals that look too good to be true, offer guaranteed returns and how the schemers got to the investor in the first place, be it through cold calls, chain emails and false promises anywhere on the internet.

By being proactive on the lookout for these scams it helps the financial world stay clear of people trying to take advantage of ignorance of certain markets and uninformed investors. The more people call out these fraudulent investors, the better alternative industries will become for investment making it advantageous for all to keep investing and growing their money.

Mike Colagrossi is an analyst at covering activist investors and major deals at hedge funds. He also regularly contributes to and has a strong interest in alternative investments and emerging markets.