ARTICLES

Financial scams are growing at an alarming rate. According to the Karnataka Criminal Investigation Department (CID), online trading scams have increased from 530 in 2022 to 3,079 cases by July 2024. Financial losses have skyrocketed as well—reaching a staggering Rs 903 crore from January to July 2024 *. With rapidly evolving fraud, it's essential to know how to protect yourself from these common financial threats.

Recognizing Common Types of Scams

The first step is understanding the most common types of financial fraud. Criminals often rely on people being unaware of how they operate. Here are some popular scams to watch out for:

Online Investment Scams

Fake stock broking apps and trading platforms are rising. Scammers lure victims by promising unrealistically high returns. Thus, leaving them to face large monetary fraud losses. 

How to protect ourselves?

Always verify the legitimacy of any investment platform before committing your funds. Ensure the platform is registered with the Securities and Exchange Board of India (SEBI) or other relevant authorities. Check for valid registration numbers with SEBI for stockbrokers, AMFI for mutual funds, and IRDAI for insurance products. Avoid platforms that promise unusually high returns as they are often fraudulent.

Here’s how to stay safe when downloading and using investment apps:

Do's:

• Only download apps from trusted sources, such as the Google Play Store or Apple App Store. Verify the app’s legitimacy by checking the developer’s information and reviews.

• Ensure the app is registered with SEBI or other relevant regulatory bodies.

• Regularly update your app to protect against security vulnerabilities.

Don’ts:

• Avoid downloading apps from third-party websites or links sent via emails or social media. These could contain malware.

• Don’t be tempted by apps offering overly high returns or too-good-to-be-true promises.

If you’re a web user, here are the security checks you should follow:

Do's:

• Always check the website URL for “https” to ensure a secure connection.

• Before entering any personal details, confirm that the platform is registered with SEBI or other financial authorities.

• Use multi-factor authentication (MFA) for added security on your accounts.

Don’ts:

• Avoid entering your financial details on websites without verifying their legitimacy.

• Don’t click on pop-up ads or unsolicited links for investment opportunities. Scammers often use these to redirect you to fraudulent sites.

Credit Card Fraud

Scammers steal credit card information through phishing emails or compromised websites. Be cautious of common online scams where scammers pretend to represent your bank and ask for your card details over email or phone. 

How to protect ourselves?

Protect yourself from credit card fraud by keeping your credit card information secure. Never share your card details over email or phone, especially with unsolicited callers. Always use secure websites for online transactions (look for “https” in the URL). Monitor your credit card statements regularly to catch any unauthorized transactions early. Setting up transaction alerts can also help you keep track of your spending in real-time.

Ponzi and Pyramid Schemes

Ponzi schemes promise high returns with little or no risk by paying returns to earlier investors using the funds of new investors. Pyramid schemes, on the other hand, rely on recruiting more participants to generate profits. These are unsustainable and eventually collapse, leaving most participants with significant losses.

How to protect ourselves?

To avoid being drawn into Ponzi and pyramid schemes, thoroughly research any investment opportunity that guarantees high returns with little risk. Be sceptical of schemes that require recruiting others to earn profits. Legitimate investments focus on value creation, not recruitment. Look for regulated investment opportunities, and consult a licensed financial advisor if unsure.

Phishing Scams

Phishing involves fraudsters sending fake emails or messages that appear to come from a legitimate source, such as your bank or an investment company. They aim to steal personal information like login credentials or bank details, which can then be used to drain your accounts. In common bank scams, fraudsters ask for sensitive information like your PIN or social security number under the pretext of resolving a problem with your account.

How to protect ourselves?

Protect yourself from phishing scams by being cautious of unsolicited emails or messages that ask for personal information. These scams often look like they come from your bank or a legitimate company. Always verify the sender’s identity before clicking on any links or providing sensitive data like your bank details. Enable multi-factor authentication (MFA) for added security on your financial accounts.

Corporate Fraud

This fraud happens within organizations where executives commit security fraud. Popular instances include misreporting financial statements. The Satyam Computer Services Scandal (2009) is one of India’s biggest examples of corporate fraud. This scandal led to investor panic, a sharp decline in the stock market, and regulatory reforms. Thereby causing the downfall of one of the country’s leading IT companies.

How to protect ourselves?

If you’re investing in companies, always review their financial statements and reports to ensure transparency and legitimacy. Keep an eye out for any discrepancies or inflated revenue figures that could indicate corporate fraud. Consult with a trusted financial advisor before making significant investments. When in doubt, avoid companies with a history of legal or regulatory issues.

What to Do if You Fall Victim:

• Report the Scam: Notify your bank or credit card provider immediately. They can freeze your accounts and stop further transactions.

• Seek Scam Victim Support: Reach out to local authorities, such as the police, who deal with cases of victims of internet fraud. You can report cyber crimes online using the National Cyber Crime Reporting Portal. You can also dial 1930 to call the Cyber Crime Helpline.

• Recover Stolen Funds: Though it may take time, recovering money from a victim of a fraud case is possible. Start by disputing fraudulent charges and providing proof of the financial scam. In August 2024, a Bangalore couple made headlines for recovering a significant portion of the sum lost to an investment fraud. The UK-based scammers defrauded ₹1.53 crore. Reports cite that Bengaluru’s East Division Cybercrime Police was successfully able to retrieve ₹1.4 crore *.

• Prevent Future Scams: If you've fallen victim, try to prevent it from happening again. 

By recognizing common scams, securing personal information, and knowing what to do if you’re a victim, you can protect yourself from significant financial loss. Stay informed, verify everything, and be cautious with your financial data to prevent potential threats.