The Expert Podcast

How Does a Typical Online Fraud Work?

You may have been defrauded or scammed out of money from some type of investment—maybe purchasing a luxury item like a watch or a PlayStation. So how do these scams work? What are the typical red flags to watch for? And if you are a victim, how do you get your money back?

An online scam usually starts with the presentation of some opportunity to the victim. It may be an investment, such as a promise like, "If you put your money into this deal, we’ll double your money in two months," or "We’ll promise a 20% return every month." It could also involve schemes where, after putting your money in, you supposedly get it back with some additional profit. Sometimes it’s the purchase of an item at an unreasonably good deal.

For example, we talked to a client last week about a Rolex watch sold at a low price. They sent the money but never received the watch. Similarly, scams might target hard-to-find items, like when PlayStation 5 consoles were in high demand or certain sneakers were scarce. At a lower level, scams may result in smaller losses, but sometimes victims lose tens or hundreds of thousands of dollars. In recent months, we’ve even seen cases where losses exceeded one million dollars.

Typically, these scams originate on social media platforms like Facebook, Instagram, or Telegram. The approach might not be a direct solicitation like, "Hey, put your money in." Instead, it could be part of a dating scam. For instance, someone might connect with you on a dating site, chat with you for weeks, and casually mention how they made money in an investment. Alternatively, they might post photos of themselves enjoying a luxury lifestyle, accompanied by captions like, "Congratulations to me for making a big profit on my investment deal."

The scammers’ goal is to make you ask about the investment. They don’t actively pitch it but make you feel curious and almost beg for details. When you inquire, they might initially act hesitant, claiming they’re unsure if the opportunity is still available. Eventually, they’ll introduce you to the "investment company."

Once in touch with the "investment company," you’ll hear details about the deal—how they invest in cryptocurrency, bonds, or other ventures. They present themselves as regular investors, claiming no direct involvement with the company. You’re encouraged to start with a small amount, such as $500 or $1,000.

After investing, you receive account statements that make it appear your money is growing. For example, your $1,000 might "turn into" $2,400 in a short time. They then entice you to invest more, promising even higher returns. If you deposit $8,000 to bring your total to $10,000, the account might "double" within 30 days.

The scammers continue using account statements to lure you further. They might show $20,000 in your account and suggest that investing another $30,000 will bring the total to $100,000. Victims often keep putting in money, believing the growing account balance is real.

Eventually, you might try to withdraw funds. At this point, they introduce excuses. You’re told you need to pay taxes on your profits—say, 20% of $60,000. You pay the $12,000, but then they claim you owe additional fees, such as audit, accounting, or import fees. Scammers follow a detailed script to extract as much money as possible, using tactics until victims run out of funds or become suspicious.

In the case of physical goods, scammers might ship a box containing bricks or rocks to make it seem like they sent something. Regardless of the method, victims often realize they’ve been scammed only after exhausting their resources.

What Can You Do If You’ve Lost Money?

Recovering your funds involves a three-step process:

Investigation: Identify the true identity of the scammer, as they often use fake names, emails, addresses, and phone numbers.
Asset Search: Locate their assets, such as bank accounts, real estate, or corporate holdings.
Garnishment: Use legal processes to seize their assets.
These steps require professional assistance and persistence.

In summary, online fraud often starts innocently—a casual mention of an investment, a social media post, or a dating connection. Scammers use clever tactics to build trust, encourage small investments, and then escalate. Red flags include promises of guaranteed returns, hesitancy to share details, and repeated requests for more money. Recognizing these patterns early can help you avoid falling victim to such schemes.