Types of scams, explained with real cases

There are about a dozen types of financial scams, but almost all of them come down to the same question: where does the money they're promising you come from? In a Ponzi scheme it comes from the investors who arrive later; in a pyramid scheme, from the people you recruit; in accounting fraud, from falsified books. In 2024, investment fraud was the type of scam that cost Americans the most money according to the FTC, with $5.7 billion in reported losses, and the FBI reached the same conclusion with its own data.

What types of scams are there?

This is the classification MATERIUM uses. Each type has its own page explaining how it works, how to spot it and a real case from the series that proves it:

• Ponzi scheme. A manager promises high, steady returns and pays the early investors with money from the later ones. Charles Ponzi gave it his name in Boston in 1920; Bernie Madoff kept one going for decades.
• Pyramid scheme. You earn by bringing in others, not by selling or investing. Sergei Mavrodi's MMM dragged in millions of Russians in the 1990s.
• Ponzi vs pyramid scheme vs MLM. The comparison: how they're alike, how they differ and why legitimate multi-level marketing isn't the same thing as a pyramid scheme.
• Investment fraud. The product doesn't exist or isn't what they say it is: bonds from a made-up country, like Gregor MacGregor's Poyais, or impossible certificates of deposit, like the ones from Allen Stanford's bank.
• Romance scam. First the relationship, then the emergency and the request for money. It's the method attributed to the so-called Tinder Swindler.
• Crypto scams. The most modern disguise: coins with no blockchain, like OneCoin, or platforms that use their customers' money, like FTX.
• Accounting fraud. The company exists, but its numbers don't. Enron inflated its profits and hid its debt until it went bankrupt in 2001.
• Pump and dump. Inflating a stock's price with cold calls and promises in order to sell it at the top. The technique of Jordan Belfort's firm.
• Startup fraud. Selling the future without a present to back it up. Theranos promised hundreds of tests from a single drop of blood.
• Affinity fraud. The scammer leans on a group that trusts him (a community, a church, a club), and that trust takes the place of checking.
• Recovery scam. The second scam: someone promises to get back what you lost in the first one in exchange for an upfront payment.

Why do they overlap so often?

Because a scammer doesn't pick a type, he picks a disguise. OneCoin was, in its mechanics, a pyramid scheme selling “educational packages,” presented as the cryptocurrency that would put an end to bitcoin. Billy McFarland's fake festival combined deceived investors with celebrities who promoted it. Many of today's romance scams end with the victim being asked to “invest” on a crypto platform that only exists as a website.

So to classify a suspicious offer, don't look at what it sells (gold, stamps, crypto, artificial intelligence, land), but at how you're supposed to make money. If the answer is “with the money of the people who come after you,” it doesn't matter what it's called.

How do you recognize any of them?

Every scam on this list shares the same red flags: high, guaranteed returns, pressure to act fast, secrecy, earning by bringing in others, proof produced by the seller itself and payments that are hard to dispute. And every one of them pulls at least one of the five levers of deception: greed, trust, authority, fear of missing out and shame. Why those levers work even on smart people is explained in why people fall for scams.

To check something specific you're being offered, use MATERIUM's scam checker. And before you invest in anything, look the company up in its regulator's register, not on its website: in the US, FINRA BrokerCheck and the SEC's Investor.gov; in the UK, the FCA Register and the FCA Warning List.

The sixteen lessons of the first season, one per case, are summed up in The Laws of Deception.