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Currency Investing Scams: How To Recognize The Red Flags

20 Feb
Currency Investing Scams: How To Recognize The Red Flags

Will This Currency Play Earn You 10,000%?

“I’m expecting a windfall payout imminently from a currency investment. When I receive it, I want to reinvest the proceeds in real estate overseas…”

So wrote a reader a couple of years ago.

He didn’t want to say what the investment was for fear of tipping off the marketplace, but, eventually, in a follow-up email, he did name it:

The Iraqi dinar.

After I finished laughing, I started digging to try to understand the who, what, and how behind this so-called investment.

The premise was that the Iraqi dinar would soon revalue… just as the Kuwaiti dinar had revalued after the United States freed that country following its invasion by Iraq.

The internet has made it easier than ever for these kinds of “opportunities” to gain traction.

In the case of the Iraqi dinar play, those behind it put up websites that looked like newsfeeds and then populated them with news alerts calling for the imminent revaluation of Iraq’s currency.

The websites did their job. Over the months to follow, I heard from at least a dozen other readers about the slam-dunk currency play they’d made and the ridiculous levels of returns they expected to yield from their Iraqi dinar investments.

On one hand, you could argue that this offer wasn’t in fact a scam. No law I know against selling someone something you then deliver.

In this case, the Iraqi dinar dealers were selling at current exchange rates and delivering physical currency to buyers.

I know that the physical currency has been delivered because I’ve met, over the past couple of years, several readers who’ve come down to Panama with duffle bags full of Iraqi dinars.

They’ve appeared at conferences and even in my office to present their bags of dinar cash and to ask for my help exchanging them.

No, I’ve explained, I can’t help exchange dinars for dollars or anything else.

The sad truth is that these folks are never going to see any of their hard-earned dollars again.

In the car business, you might say they’d been sold a lemon.

If you buy a car and take possession and ownership of that car… were you scammed if it breaks down for good a week later?

The folks who bought into the Iraqi dinar deal thought they were buying Iraqi dinars… and they received Iraqi dinars.

Were They Scammed?

They expected the currency they bought to appreciate significantly over a short period. Some sites I saw talked of appreciation of as much as 10,000% and more.

Meaning some people believed a US$10,000 investment would turn into US$1 million.

What they ended up with was an expensive novelty item.

I still get the odd inquiry from a reader wondering where he can exchange his Iraqi dinars when the revaluation happens. Assuming that the currency you hold hasn’t been decommissioned, you may be able to exchange it at the Iraqi Central Bank in Baghdad.

You can promise people something only so many times, I guess, before they stop believing you—in this case that the Iraqi currency is going to revalue next week.

That is, the Iraqi dinar opp seems to have run its course…

And it has been replaced by:

The Zimbabwe dollar opp.

A reader wrote last week to say he’s waiting for the revaluation of his Zimbabwe dollars before pulling the trigger on a real estate investment in Panama he’s identified.

The Zimbabwe dollar pitch comes with a twist.

The Zimbabwe currency is defunct. You can buy 100 trillion and 50 trillion Zimbabwe dollar notes on eBay. I have a friend who gives them away as door prizes at conferences.

So, for this currency play, you don’t buy Zimbabwe dollars but Zimbabwe dollar bonds.

Just like the Iraqi dinar scam, websites have been set up to herald the imminent revaluation of these Zimbabwe dollar bonds. The argument for revaluation holds that Zimbabwe is using its gold reserves to restructure its debt.

Again, the promise is for returns of as much as 10,000% and more.

My Two Cents On Foreign Exchange

Exchangeable currencies don’t move thousands of percentage points overnight. Currencies subject to that level of volatility aren’t easily exchanged… and they lose value rapidly, not the other way around.

One thing these kinds of scams have in common is that those pushing them don’t want you telling anyone else about the extraordinary opportunity you’ve been able to get in on.

If word got out, they insist, the revaluation could be jeopardized. Best to keep the investment to yourself until after you’ve realized your profits.

By discouraging you from talking with sane people about the play, the scammers make it more difficult for you to carry out due diligence. They direct you to the fake websites for news on when the revaluation will occur. That’s the only place they want you doing any research.

If someone pitches you an investment that promises returns that sound too good to be true… and then warns you against speaking with anyone about what you’re doing… see those things for what they are: bright red flags.

And, please, whatever you do, don’t come to Panama with a duffle bag full of either Iraqi dinars or Zimbabwe dollars and ask for help exchanging them when the revaluation occurs.

I can’t.

Lief Simon