Investment Scams: Protect Yourself from Fraudulent Schemes

Question 1

What is the main tactic con artists use to attract victims to investment scams?

Accepted Answer

Promising unrealistic returns with minimal risk

Answer

Involving reputable financial institutions

Answer

Using complex investment strategies

Answer

Getting endorsements from celebrities or financial experts

Question 2

Which of the following is NOT a common type of investment scam?

Accepted Answer

Government-backed investments

Answer

Ponzi schemes

Answer

Pyramid schemes

Answer

Pump-and-dump schemes

Question 3

What is a Ponzi scheme?

Accepted Answer

A scam that pays early investors with money from new investors

Answer

A pyramid scheme that involves selling physical products

Answer

A pump-and-dump scheme that manipulates stock prices

Answer

A sure-thing scam that guarantees high returns

Question 4

How does a pyramid scheme work?

Accepted Answer

It pays existing investors with money from new recruits

Answer

It sells overpriced products or services

Answer

It manipulates stock prices to generate profits

Answer

It promises unrealistic returns to entice investors

Question 5

What is the difference between a pump-and-dump scheme and a Ponzi scheme?

Accepted Answer

Pump-and-dump schemes involve manipulating stock prices, while Ponzi schemes rely on new investors

Answer

Ponzi schemes involve selling physical products, while pump-and-dump schemes are stock-based

Answer

Pump-and-dump schemes are illegal, while Ponzi schemes are legal

Answer

There is no difference between the two

Question 6

What is a sure-thing scam?

Accepted Answer

A scam that promises unrealistic returns with no risk

Answer

A Ponzi scheme that uses physical products as collateral

Answer

A pyramid scheme that involves recruiting new members

Answer

A pump-and-dump scheme that manipulates stock prices

Question 7

What is a 'Ponzi scheme'?

Accepted Answer

A fraudulent investment scheme where early investors are paid with funds from new investors

Answer

A legitimate investment strategy that generates returns through compound interest

Answer

A government-backed retirement savings plan

Answer

A mutual fund that invests in high-yield stocks

Question 8

Which of the following is considered a legitimate investment strategy?

Accepted Answer

Diversifying investments across different asset classes

Answer

Buying and selling stocks frequently based on market rumors

Answer

Lending money to friends or family without a written agreement

Answer

Investing all savings in a single risky asset

Question 9

What is the primary role of the SEC in combating investment scams?

Accepted Answer

To regulate the securities industry and protect investors from fraudulent practices

Answer

To prosecute individuals involved in investment-related crimes

Answer

To provide financial advice to the public

Answer

To set interest rates

Question 10

What is a 'pyramid scheme'?

Accepted Answer

A fraudulent investment scheme where participants earn money primarily by recruiting new investors

Answer

A legitimate business model based on referrals

Answer

A type of investment fund that pools money from various investors

Answer

A government-backed retirement savings plan

Question 11

To avoid falling prey to investment scams, what practical steps should you take to assess an investment opportunity and spot potential red flags?

Accepted Answer

Investigate the company's team, financial history, and industry standing.

Answer

Trust solely in a financial advisor's counsel without doing your own research.

Answer

Invest solely in high-return ventures that guarantee profits.

Answer

Ignore any warnings or red flags raised by reputable sources like consumer protection agencies or financial experts.

Question 12

Analyze the similarities and differences between Ponzi schemes and pyramid schemes. Discuss their shared characteristics, target audiences, and potential consequences.

Accepted Answer

Both schemes depend on a steady influx of new investors to pay returns to existing investors.

Accepted Answer

Pyramid schemes usually involve selling a physical product, unlike Ponzi schemes.

Accepted Answer

Both schemes are illegal in most jurisdictions.

Answer

Ponzi schemes often target knowledgeable investors, while pyramid schemes typically target less experienced investors.

Question 13

Who is primarily responsible for regulating the investment industry and enforcing laws to protect investors from scams?

Accepted Answer

Government agencies and self-regulatory organizations

Answer

Law enforcement agencies

Answer

Consumer protection agencies

Answer

Private investigators

Question 14

Which of the following psychological factors can make individuals particularly susceptible to falling prey to investment scams?

Accepted Answer

Cognitive biases, emotional vulnerabilities, and social influences

Answer

Primarily cognitive biases and emotional vulnerabilities

Answer

Cognitive biases and social influences only

Question 15

What is a defining characteristic of 'affinity fraud,' a strategy often used by fraudsters to exploit specific groups?

Accepted Answer

Leveraging shared trust and common interests

Answer

Employing complex financial terminology

Answer

Targeting individuals with high-risk tolerance

Answer

Promising unrealistic returns

Question 16

Why is it essential to conduct due diligence before investing?

Accepted Answer

To evaluate an investment's validity and potential risks.

Answer

To ensure a guaranteed return on your investment.

Answer

To save money on due diligence fees.

Answer

To show off your investment expertise to others.

Question 17

What is the name of the government agency in the United States that regulates the securities industry?

Accepted Answer

Securities and Exchange Commission

Answer

Federal Reserve

Answer

Federal Deposit Insurance Corporation

Question 18

Describe the potential financial, emotional, and legal repercussions of falling victim to an investment scam.

Accepted Answer

Loss of invested funds and potential returns

Accepted Answer

Emotional distress, including anxiety, depression, and loss of trust

Accepted Answer

Legal liability if the scam involves illegal activities

Answer

Enhanced financial literacy

Question 19

Which of the following is NOT a common type of investment scam?

Accepted Answer

Hedge funds

Answer

Pyramid schemes

Answer

Ponzi schemes

Answer

Pump-and-dump schemes

Question 20

What should you do if you suspect you or someone you know is the target of an investment scam?

Accepted Answer

Report it to the Securities and Exchange Commission (SEC) or your state securities regulator

Answer

Warn friends and family about the scam

Answer

Try to negotiate with the scammer to get your money back

Answer

Do nothing and hope the problem goes away

Question 21

What is a key characteristic of a Ponzi scheme?

Accepted Answer

It pays returns to early investors with funds from new investors

Answer

It is a legitimate investment strategy with a proven track record

Answer

It involves investing in high-yield bonds and real estate

Answer

It is backed by government guarantees

Question 22

What is a pump-and-dump scheme?

Accepted Answer

A scheme where fraudsters artificially inflate the price of a stock and then sell their shares at a profit

Answer

A legitimate investment strategy that involves buying and selling stocks quickly to make a profit

Answer

A type of investment fund that invests in small, high-growth companies

Answer

A government program that provides tax breaks to investors

Question 23

Which of the following represents a reputable investment firm?

Accepted Answer

Fidelity Investments

Answer

Bernie Madoff Investment Securities LLC

Answer

Madoff Securities

Answer

Stanford Financial Group

Question 24

What is the term for a fraudulent scheme where scammers artificially inflate the price of a stock, then sell their shares for profit?

Accepted Answer

Pump-and-dump scheme

Answer

Short-selling scam

Answer

Insider trading scheme

Answer

Market manipulation scheme

Question 25

What is a Ponzi scheme?

Accepted Answer

A fraudulent investment that pays returns to new investors using funds from existing investors

Answer

A legitimate investment strategy with steady returns

Answer

A government-backed retirement plan

Answer

A type of pyramid scheme involving physical goods

Question 26

Which characteristic is NOT typically associated with a pyramid scheme?

Accepted Answer

Offering legitimate products or services

Answer

Requiring participants to recruit new investors

Answer

Promising unrealistic returns with minimal risk

Answer

Involving physical products

Question 27

What is the recommended action if you suspect you are being targeted by an investment scam?

Accepted Answer

Report it to the authorities immediately

Answer

Withdraw your funds without notifying the scammer

Answer

Contact the investment advisor directly

Answer

Wait and monitor if you receive the promised returns

Question 28

What is a mutual fund?

Accepted Answer

A professionally managed and diversified investment portfolio

Answer

A type of bond with regular interest payments

Answer

A government-backed retirement savings plan

Answer

A certificate representing ownership in a company

Question 29

How effective are public awareness campaigns in promoting financial literacy and educating investors about investment scams?

Accepted Answer

Moderately effective, as they can raise awareness and provide basic information about investment scams, but may have limitations in fostering critical thinking and decision-making abilities.

Answer

Highly effective, as they provide comprehensive financial literacy training and equip investors with advanced scam identification skills.

Answer

Slightly effective, as they may provide some general information about investment scams, but their impact on reducing the number of scam victims may be minimal.

Answer

Not effective, as they often fail to reach the intended audience or provide meaningful information about investment scams.

Question 30

Which type of investment scam involves paying early investors with money from new investors?

Accepted Answer

Ponzi scheme

Answer

Pyramid scheme

Answer

Boiler room operation

Answer

Affinity fraud

Question 31

What is the best way to protect yourself from investment scams?

Accepted Answer

Be cautious of unsolicited offers and do your research.

Answer

Ignore government warnings about investment fraud.

Answer

Invest in high-yield investments with guaranteed returns.

Question 32

Which of the following is a tactic used by investment scammers to pressure investors?

Accepted Answer

Creating a sense of urgency

Answer

Providing detailed financial statements and audited reports.

Answer

Offering low-risk, high-return investments with guaranteed returns.

Question 33

What is the primary responsibility of the Securities and Exchange Commission (SEC) in regulating investment scams?

Accepted Answer

To enforce laws and investigate securities fraud.

Answer

To guarantee the legitimacy of all investment opportunities.

Answer

To provide financial advice to investors.

Question 34

Which type of investment fraud specifically targets senior citizens?

Accepted Answer

Affinity fraud

Answer

Ponzi scheme

Answer

Boiler room operation

Answer

Pyramid scheme

Question 35

What is the most effective way to report an investment scam?

Accepted Answer

File a complaint with the SEC.

Answer

Inform a trusted financial professional.

Answer

Contact the local police department.

Answer

Post a warning on social media.

Question 36

Which of the following is NOT a characteristic of a legitimate investment opportunity?

Accepted Answer

Promising unrealistic returns with no risk.

Answer

Clear and concise investment prospectus.

Answer

Registered with regulatory agencies.

Answer

Transparent and accountable management team.

Question 37

What is the Federal Trade Commission's (FTC) primary role in combating investment scams?

Accepted Answer

To educate the public and investigate fraudulent business practices.

Answer

To provide financial assistance to victims of investment scams.

Answer

To prosecute individuals and companies involved in investment scams.

Question 38

Which of the following is a classic type of investment scam?

Accepted Answer

Ponzi scheme

Answer

Real estate investment trust

Answer

Mutual fund

Answer

Index fund

Question 39

What is a common warning sign of an investment scam?

Accepted Answer

Unsolicited offers of guaranteed high returns

Answer

Licensed and regulated by reputable organizations

Answer

Advertised on a reputable website

Answer

Recommended by friends or family

Question 40

Which group of individuals is a common target of investment scammers?

Accepted Answer

Elderly individuals

Answer

High-income earners

Answer

Students

Answer

Professionals

Question 41

What is a crucial step in protecting oneself from investment scams?

Accepted Answer

Thoroughly researching the investment, company, and its representatives

Answer

Investing only large sums of money to reduce risk

Answer

Listening to financial advisors without verifying their credentials

Question 42

Which government agency is responsible for protecting consumers from financial fraud, including investment scams?

Accepted Answer

Securities and Exchange Commission (SEC)

Answer

Internal Revenue Service (IRS)

Answer

Federal Bureau of Investigation (FBI)

Answer

Consumer Financial Protection Bureau (CFPB)

Question 43

What should you do if you suspect you've been a victim of an investment scam?

Accepted Answer

Report it to the appropriate authorities and consult with legal professionals

Answer

Withdraw all your funds from your account immediately

Answer

Contact the company offering the investment and demand your money back

Question 44

Which of the following is a characteristic of a legitimate investment opportunity?

Accepted Answer

Clear and concise investment terms, with no hidden fees or conditions

Answer

Pressure to invest quickly without proper research

Answer

Unrealistic returns that are too good to be true

Answer

Aggressive sales tactics and a sense of urgency

Question 45

What is a Ponzi scheme?

Accepted Answer

A fraudulent investment operation that uses funds from new investors to pay returns to existing investors

Answer

A type of investment that is guaranteed to make a profit

Question 46

What is a characteristic of Ponzi schemes?

Accepted Answer

Early investors are paid with money from later investors.

Answer

They are government regulated.

Answer

They have guaranteed high returns with low risk.

Question 47

What is the primary role of the Financial Industry Regulatory Authority (FINRA)?

Accepted Answer

To regulate the securities industry.

Answer

To investigate fraud in the healthcare industry.

Answer

To provide tax advice to investors.

Answer

To insure deposits in banks.

Question 48

Which type of scam specifically targets certain groups like seniors or religious communities?

Accepted Answer

Affinity fraud.

Answer

Ponzi scheme.

Answer

Pyramid scheme.

Question 49

If you suspect you are a victim of an investment scam, what should you do first?

Accepted Answer

Contact the Securities and Exchange Commission (SEC).

Answer

Sell off your investments immediately.

Answer

Withdraw all your money from your bank account.

Question 50

What is the purpose of a prospectus?

Accepted Answer

To provide detailed information about an investment to potential investors.

Answer

To prevent investors from losing money.

Answer

To guarantee the safety of an investment.

Question 51

Which factor increases an individual's vulnerability to investment scams?

Accepted Answer

Limited financial knowledge.

Answer

Using a sophisticated investment strategy.

Answer

Earning a high income.

Answer

Having a trusted financial advisor.

Question 52

What is a red flag of a pump-and-dump scheme?

Accepted Answer

A sudden spike in stock price followed by a rapid decline.

Answer

Regular moderate gains in stock price over time.

Answer

A gradual decline in stock price followed by a recovery.

Question 53

Which is NOT a good strategy to protect yourself from investment scams?

Accepted Answer

Investing in risky investments with the promise of high returns.

Answer

Investing only with licensed financial advisors.

Answer

Researching investments thoroughly before making them.

Question 54

What is the main lesson learned from the Bernie Madoff Ponzi scheme?

Accepted Answer

The importance of investing with reputable financial institutions and verifying investment returns.

Answer

The necessity for tighter government regulation of the financial industry.

Answer

The dangers of investing in stocks and bonds.