Online investment scams on the rise: Navigating the risks of cybercrime

Cybercrime is one of the fastest-growing challenges faced by law enforcement agencies worldwide. This is largely due to the unprecedented rise in Internet and smart phone users, driven by the rapid growth in information and communication technology over the last decade. Cybercrimes can have far-reaching impacts, including disruptions to critical infrastructure, financial frauds, and data breaches. The combination of significant payoffs, minimal costs, and a lack of geographical constraints has contributed to the rapid increase in such crimes.

Although cybercrimes come in many forms, investment frauds account for a large and growing percentage of online fraud cases. In these schemes, criminals lure prospective investors into investing in nonexistent or misrepresented opportunities. They often contact the victims through advertisements on social media platforms or other Internet-based services. These fraudulent ads include free introductory videos or written material promising high returns and quick riches. They may also feature rags-to-riches success stories. Most of these scams relate to investments in securities. This article illustrates two instances of investment fraud.

In one case, fraudsters impersonated a leading security investment agency and offered the victim shares at a discounted rate through initial public offering (IPO) allotments. They claimed the victim would be treated as a preferential investor, eligible for shares at a reduced rate. The victim initially made a series of payments totalling over Rs 3 crore. Later, the fraudsters demanded an additional payment of Rs 5 crore to complete the IPO transaction and release funds. At this point, the victim became suspicious, investigated the investment app, and realised that criminals had duped him using the investment agency’s brandname.

In another case, criminals used the name of a reputed global investment bank to cheat investors. They formed a private group of potential victims and solicited investments in securities through an app link. One victim, who fell into their trap, started trading and deposited around Rs 3.23 crore in several instalments. When the victim later requested details about the securities, there was no satisfactory reply. It was then revealed that all transactions had been conducted through a fake app link.

Investigations into both cases revealed that the victims’ entire deposits were transferred to fake bank accounts, which were then moved to several “mule” accounts, creating 4-5 layers to obfuscate the trail. Many of these criminals operate from different countries, exploiting the lack of geographical constraints on the Internet. Detection in these cases is extremely difficult for law enforcement agencies. Investigation into several online investment fraud cases has shown that most victims are educated professionals who still fall prey to these scams while seeking different avenues to invest their accumulated savings.

In addition to enhancing law enforcement’s investigative capabilities, there is an urgent need to create awareness among citizens to prevent online investment frauds. When considering online investment, be aware of the following signs of fraud:

Scamsters do not give full details about the shares and securities offered for investment. Generally, no detailed documentation will be provided to the investor.

All investments, especially in the stock market and mutual funds, come with risk. But the scamsters often claim their offers are risk-free.

Genuine companies do not guarantee high returns or offer excessive profits. If any app promises big returns, it is likely a scam.

Fraudsters may not give enough time to think about or verify the legitimacy of their offers. They use psychological pressure to force victims into hasty decisions.

Scamsters make victims believe they are “chosen” to receive special promotional offers to lure them in.

To protect individuals from online investment fraud, the following precautions need to be exercised:

Verify the credentials of companies soliciting investments online or through other social media platforms. Check their websites, physical addresses, and contact numbers to confirm their legitimacy.

If the proposed investment is large, then visiting their offices and making physical contacts should be preferred.

Look for information on platforms regulated by regulatory authorities such as Securities and Exchange Board of India (SEBI) or the US Securities and Exchange Commission (SEC).

Any investment in securities and stocks involve risk, and there are no guaranteed returns. Be cautious with firms that promise unusually high returns with minimal risk.

Do not believe in special deals that require quick-decision making. Resist the pressure to commit quickly.

Beware of testimonials from group members, as scamsters often pay out high returns to early investors by using money from later investments.

Always safeguard personal information to prevent it from being used for fraudulent activities.

These precautionary measures may not cover all scenarios, as criminals continuously develop new methods for committing crimes. In cybercrimes and investment frauds, time is of the essence. The moment one realises that he/she has been defrauded, they should immediately report by calling 1930 or filing an online complaint at https://cybercrime.gov.in/ along with transaction IDs. Quick action can increase the chances of freezing the victim’s account. Report any suspicious online or social media investment offers to law enforcement authorities through cybercrime reporting portal (NCRP) or DoT Chakshu. Vigilance and due diligence on citizens’ part will go a long way in preventing not only investment scams but also other types of cybercrime.

(The writer is the Director General of Police, CID, Economic Offences and Special Units, Bengaluru)