Scams in Stock Market

It is always seen that, moment Stock Market start showing numbers and scams starts mushrooming. Despite regulatory controls and better exchange level control including single day trade embargilono on few of the scripts, punters find their way out to escape. I was courious and searched for the anatomy of Scam and came across good piece.

What Exactly Is an Investment Scam?
an investment scam is based on one person trying to make a buck off of a less-informed, or naïve, individual. Scam artists take advantage of their prey by promising impossible outcomes, risk-free rewards as well as new and undiscovered investment opportunities. And some scams that have evolved are indeed hard to identify.

Probably the most important thing to remember as far as investment scams goes is that there is no holy grail to investing, no secret sauce so to speak. Anyone claiming that their system is fool-proof is simply trying to trick you into parting with your hard-won cash. The old adage "if it sounds too good to be true, it probably is" applies in this context very well.

some the most prominent schemes that investors have been subjected to and identify the best ways to avoid being victimized.

Some schemes have been around for decades, while others have popped up with the advent of new technologies, the Internet for example, others are hybrids combining an old scam with the new communications technology available to fraudsters. Let's take a look at some of them.

Pyramid Schemes:
It is a hierarchical scam that relies on new recruits providing money to those above them in the pyramid. The person, or in some cases the company, starts the scheme by recruiting people, with the offer of extremely high returns on their investment. As the scheme begins a small number of the earliest investors do receive a high rate of return, paid for by cash inflows from new recruits -- not a return on any real investment. However the pyramid's liabilities, from the day the scam is initiated, soon exceed its assets because it cannot generate wealth any other way than promising extraordinary returns to new recruits and paying these returns by getting new recruits.

It doesn't take long before this vicious circle collapses and the new recruits' base dries up. The scam relies on an infinite number of people joining the pyramid to repay the latest set of recruits. Quite clearly this cannot happen and those at the bottom of the pyramid get burned, while a select few at the top who started the scam essentially pocket, or steal, loads of money from the new recruits.

Pyramiding at its Worst: The Albania Example
One of the most notable examples of a pyramid scheme sprung up in 1996 in Albania, where the nominal value of the pyramid scam's liabilities equaled half of the country's GDP (gross domestic product), while two-thirds of the population invested in the companies orchestrating the scam.

This was a transitory time when the country was in the midst of moving from a communist, or controlled, economy to a capitalist one, with their banking sectors and financial markets short on regulations and long on inefficiencies. With little or no experience in an open-market economy, Albanians began to entrust their money to deposit-taking companies that had begun to spring up. In turn, these companies took the depositor's funds and "invested" them.

Top 3 Ways to Avoid Getting Burnt by a Pyramid Scam:

1) Be very wary of any plan that pays you to recruit new sales people with little focus on selling an actual product.
2) Beware of an opportunity that requires you to invest a large sum up front that does nothing more than require you to recruit others.
3) Any plan that promises you greater profits once you recruit or convert more people should be suspect.