How Do Online Scams Work?

Have you ever been defrauded or scammed out of money online, perhaps through an investment or purchasing a luxury item like a watch or PlayStation? How do these scams work, and what are the typical red flags to watch out for? And if you do fall victim to an online scam, how can you recover your lost money?

Online scams go something like this…

Typically, an online scam starts with a presentation of some sort of opportunity to the victim, which could be an investment promising to double your money in two months, a scheme guaranteeing a 20% monthly return, or an offer to return your money plus an additional profit. In some cases, scammers may offer items at an unreasonably low price, as was the case with a Rolex watch recently sold to one of our clients who never received the product after sending the money. It can be difficult to identify scams, especially with popular items like the PlayStation 5 or certain types of sneakers. However, the consequences can be severe, with victims losing tens or hundreds of thousands of dollars. In fact, in recent months, we have seen cases where losses have exceeded $1 million.

Usually, there’s some social media presentation of an opportunity, which may be on Facebook, Instagram, or another platform like Telegram. Sometimes, the solicitation isn’t very direct, and it might not be a case of someone saying, “Put your money in this investment.” Instead, it could be part of a dating scam, where someone pretends to be interested in you and talks to you for weeks or months before mentioning their supposed investment success.

Alternatively, scammers might post pictures of themselves on a fancy vacation, driving a luxury car, or having a fancy dinner, saying something like, “Congratulate me for making a big profit on my investment deal.” The goal is to get victims to ask about the investment as if they are begging for it. You might see a post or receive a message from a dating profile that says, “We have this great deal for you.” When you ask about the investment, the person might “play hard to get” and say they can’t reveal the details.

Eventually, the scammers will tell you about the investment deal. They may describe an investment company that puts money into cryptocurrency or bonds, but it doesn’t seem like they’re directly involved in the investment deal. When you ask how you can get in on it, they might say they’re not sure if the company is accepting new investors, or they just give you the runaround. Eventually, they’ll put you in touch with the investment company or person behind the deal. They will explain the investment and how much money you can make. They may suggest starting with a small amount, like $500 or $1,000. You put your money in, and they send you account statements that make it seem like your investment is growing. These statements show your investment has more than doubled from $1,000 to $2,400, similar to a monthly bank statement.

The scammers may tell you to invest more money to increase your account balance. For example, they might say that if you add another $8,000 to your initial $2,000 investment, your account will double within 30 days once it hits $10,000. If you fall for it and invest the extra $8,000, they’ll show you an account statement with $20,000 in it a few weeks later. They will then use this as a means to get even more money out of you, saying that if you can get your account statement up to $50,000, it will double again to $100,000. They keep asking for money and using your account statement as a carrot to get you to invest more and reach higher levels of investment. At some point, you might get suspicious or want to take some profits. You might notice that your account statement now shows $100,000, so you decide to take out some money, either all of it or a portion.

Once you fall victim to these scams, taking any money out is nearly impossible. It’s not like a bank where you can withdraw money anytime. If you ask for a withdrawal, the scammers say you can take out your money, but you must pay taxes on your profit. For example, if your profit is $60,000, you’ll have to pay 20% tax, which amounts to $12,000. Sometimes, at this point, the victim realizes it’s a scam and takes appropriate action. However, sometimes they’ll pay the tax, thinking they’ll get their money, but the scammers will then invent additional fees, like audit fees or accounting fees, to get more money from the victim. They have a detailed playbook and script to ask for various fees, such as import, duty, and government fees until the victim either runs out of money or becomes suspicious. At that point, the victim realizes they’ve been scammed and wants to take action. In the case of physical goods, the scammers may ship a box with rocks or bricks to make it seem like they’ve sent something, but it’s the same situation: the victim is scammed.

If you’ve lost money to a scam, what can you do?

First, conduct an investigation either on your own or through an agency to discover the true identity of the person behind the scam. Scammers always use fake names, emails, addresses, and phone numbers, so finding out who they really are is crucial. Once you know their identity, run an asset search to determine where their bank accounts, real estate, and corporate assets are located. Finally, obtain a writ of garnishment, which is a legal process through the court that allows you to seize those assets.

That’s the three-step process: investigate their true identity, locate their assets, and obtain a writ of garnishment to seize their assets. The main thing to remember is that if you’re a victim of this kind of scam, it likely followed a pattern. It started innocently enough, perhaps not with a direct pitch, but with someone you met online or through social media who told you about a great deal. They didn’t hard sell you on it, but they talked about it in a way that piqued your curiosity and interest. You followed up, putting in a little money at first and then a little more until it escalated to the point where you became suspicious. Maybe you tried to take money out, and they hit you up for taxes or audit fees. That’s when you realized you had become a victim.