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Financial scams are a growing phenomenon that is increasingly difficult to contain, thanks to the spread of new technologies. What's worse, once you’ve entrusted your savings to fraudsters, it’s almost impossible to recover them.
In this interview with Debora Rosciani, a journalist at Radio 24 (Italy’s top financial radio, part of the IlSole24Ore group), Andrea focuses on scams related to the world of trading and tries to explain their mechanisms and provide valuable information to learn how to recognize and defend against them.
By watching the interview, you’ll discover:
-What are the biggest financial scams in history
-What emotions scammers exploit the most
-Why you should not trust anyone who offers you a 10% fixed return per month
-How some modern scams, like the British lawyers' scam work
What do the great financial scams of history have in common? We’ll talk about this with Andrea Unger, the 4-time World Trading Champion.
Welcome back. Today we're going to be talking about scams, in particular financial scams.
The aim is to make the public aware of the main scams to which so many small savers have fallen victim over time and which are still widespread in the world of investment, especially in the world of trading.
Although more and more is written and discussed, the number of victims of these situations is constantly increasing.
So, what can we learn from the past? How can we protect ourselves to avoid these scams?
We discuss this with Andrea Unger, the only person to have won the World Cup Trading Championships four times in the Futures category.
Andrea, welcome back.
Good morning, everybody. Hi Debora.
Biggest financial scams in history
So, let's start with the world of financial scams.
History tells us many, has told us, unfortunately, many stories. So many stories that have affected the entire global financial landscape, and some specific stories that have affected our country instead.
The Ponzi scheme, Bernie Madoff, and the like, just to mention the stories that have also ended up in the news for some glamorous aspect, but just like I said, history has really told us many stories of financial scams.
If I were to ask you to list the biggest financial scams, which would you start with, and which scams particularly stood out?
Yeah, well, you've already said everything. In the sense that the "Ponzi scheme," and then Madoff, who followed that model, which is the one behind so many scams that are based on a sort of word-of-mouth.
As in... Well, what is the "Ponzi scheme" anyway? So, the "Ponzi scheme" is a scheme whereby the fraudster collects sums to be invested, promises lavish profits, and then starts distributing these profits to newcomers. In this way, after some time, the profits distributed are actually other people's money.
So, even though it looks like there are substantial gains, actually those profits are paid for with newcomers’ money, right?
So, there was absolutely nothing invested, or at least not to the extent that he wanted people to believe.
Why is that? Because that has an enormous publicity effect on his work.
Because all those who collect the juicy interest from the investment, in this case, tell their circle of friends and relatives about it and thus gather, unwittingly in collaboration with the fraudster, to gain new subscribers.
So, this pattern goes on and on and works until the moment when the masses don’t ask for the money back, for one reason or another. Not necessarily out of fear of anything, but simply because chance wants that many people request their money back, but the money is nowhere to be found.
And that’s when the whole house of cards collapses. And that’s so dangerous because it’s insidious. Because it could also be your neighbor or your relative who tells you, look, I did this. I made so much money. All true, the money arrived and so on.
That’s sort of the old-fashioned scam that's come into the institutional world as well. Because in the past, it was maybe more word of mouth among friends and, sometimes, a particular environment which can be found from time to time.
Instead, we came to real institutions to move in the same way. Using money that wasn't earned in the markets, to make believe there were gains, and then raise new sums.
Then, if the sums exceed a specific limit, maybe they disappear. That’s a possibility.
Sometimes they disappear and there’s nobody left.
Or sometimes there is simply the bubble that can burst at any moment precisely because there isn’t as much money as you think there is to pay interest to everyone.
Today, scams have evolved. Thanks to or because of the Internet, there is more communication and more information.
Information is often conveyed to make people believe things that don’t exist in reality thus falling into the traps of those who instead rely on the false hopes of unfortunate individuals.
So, hopes for lavish profits in areas... Today we’re talking about cryptocurrencies, but in the past, there was Forex, Binary options... so many things were used to make people believe in the possibility of disproportionate gains.
And then they set up their criminal organizations, posing as brokers or managers or whatever, steal the unfortunate person’s money with promises of huge gains, and then, they usually disappear.
Then maybe we’ll talk more in detail about how scams work today, the more classic ones, but the pattern is always the same.
I ask you for money, make you think you're making money, and then when you've given me more money, when I think I've squeezed you enough, I disappear, and you can't track me down.
Moreover, these fraudsters are usually based abroad, where supervisory authorities can’t even legally intervene to recover all those ill-gotten gains.
Why you shouldn't trust those who promise large returns
Andrea, you mentioned the concept of lavish profits in your first argument.
But we’re living in a period where objectively, even if there are some asset classes that are doing well, it has been difficult in recent years to get particularly attractive results for almost all financial assets.
And yet some people believe, for example, that their money can grow with double-digit percentages, month after month, even day after day.
This is also a big issue of financial literacy. It means not reading a newspaper, not looking anything up, and most importantly, not being suspicious at all, because if someone comes along and makes you a promise that’s completely out of context, you shouldn’t believe it. So, this is an important issue.
Yes, I think that’s a key issue, but it’s also often intentionally ignored. There’s a kind of armor that prevents you from hearing the truth because you just don't want to believe it.
It's a bit like dieting. You always think there's a trick to losing weight quickly without making sacrifices, right?
Again, you want to believe that there’s a world where there’s the best informed, where there are the experts, where there’s someone special, and they can multiply the loaves and fish, right?
And we’re talking about impressive numbers right now. These numbers aren’t necessarily impossible to achieve.
In the sense that some people have made a lot of money with Bitcoin.
Some people invested in 2011, earned money, we don't know how, maybe thanks to some Saint in heaven who protected them, and became billionaires. It happened.
In my opinion, they did it almost unknowingly or believing whatever, but not because they knew that this was going to happen.
But today, nobody can tell us what will happen even in the next 5 minutes, or even in the next year, or the next few years.
So, anyone who’s relying on these achievements today to encourage us to invest in who knows what field is in bad faith because there is no guarantee that what has happened will happen again, and which has already happened to such an extent that it will be very difficult to replicate.
And then of course we’re talking about double-digit monthly, weekly, and daily results.
I mean, ridiculous things. Sometimes people tend to believe them, partly because overall, they tend to underestimate the impact of compound capitalization of numbers.
That is, you know, 10% per month doesn't seem to be so much when said that way. But, if you made 10% each time, it wouldn’t be a classic 120% per year because there would be capitalization.
It would be much more. You would become a billionaire in a short time if that were possible. But unfortunately, it isn’t.
And I am addressing everybody here. Not those who, perhaps because they didn't study economics specifically or nothing at all, think they are weaker in this sense.
Unfortunately, it’s terrible to say this. Still, human greed or the dream of wealth leads to the fact that even people who have dedicated themselves to particular studies, perhaps even in this field, want to believe that it’s possible, always assuming that there is someone who can.
Let me tell you something. I won the 2008 championships with a return of 672% in a year. But that's not my usual performance, that was a championship. That’s what I achieved in that year. As for the other years that I won, I didn't achieve as much, but it was a great year, I mean ONE year -- and we're talking about 672%.
Here it seems that it happens every day.
These are special cases. They aren’t always replicable to the same degree. If there's something behind it that you can make money with, maybe yes, but not to the extent that it changes people's lives.
I can’t imagine going with €100, investing it wherever, and becoming a millionaire after a few months. That’s entirely out of the question.
Wrong investments and financial education
Andrea, there can be and are financial scams, which is precisely the subject of our talk.
Then some investments are perhaps wrong, made at the wrong time, or that don’t exactly produce a satisfactory result or at least one that meets your expectations.
For example, you can invest in the stock market at a specific time, and precisely at the wrong time. For example, suppose that we are at the beginning of a downturn, then maybe the market recovers, but we’re unlucky, and we invest precisely with what is called "wrong timing."
In the perspective of many people, this is also a scam. "I was given wrong advice," "they didn't tell me what I should do," "my advisor made me make this mistake."
Behind this, there’s always a desire to blame someone else for our decisions, which are often just not appropriate, especially when it comes to our money.
But that's only one part of the argument, financial fraud is something else.
But in my opinion, we should also do some, how shall I say, solid financial education on this topic, because precisely as I was saying just a moment ago, even those who make a mistake in investing, and do it maybe in the most liquid market in the world, which is maybe, I don't know, a stock market index like the American one, if they do it at the wrong time, they’ll lose money.
But maybe there needs to be some clarity on that as well. What are your thoughts on this?
Yes, so first of all, it’s clear that if the bank advisor tells me to invest in the U.S. index because he’s convinced and explains to me why he thinks it’s going up and then it loses, he didn’t deceive me. He just made a bad assessment.
I trusted him as an expert in that field. I was wrong to trust him. He was wrong. Nobody is perfect, so it isn’t a scam. Besides, he probably earned the commissions on the investment, sure, but, of course, he didn’t get anything from my loss.
But it did go wrong, and that can happen, and you have to be aware of it. In the stock market, you can lose.
As a professional trader, I often lose. But I keep my losses under control so that I know I have the possibility of losing tomorrow as well! I'm joking of course, but the aim is to always preserve enough capital to continue trading.
The important thing is that when things go well, I’ll take full advantage of it.
But sure, losing is normal. If the loss becomes excessive and breaks the bank or otherwise puts us in a position to give up, then obviously something was wrong upstream.
The most common mistake is over-exposure, believing too much in that investment, and putting too much money into it.
And that’s where the blame falls heavily on us.
Of course, it should also be the advisor who says, watch out, here you can't, let’s say, put 30% of your assets on this, because the risk... There, there you could maybe discuss that. But that depends on advisor to advisor, so you can't talk about fraud even here.
It also always depends on the psychology of each individual.
But it’s like this: if you overdo something, you take too great of a risk. When things go well, then we toast and are happy. However, when things go badly, they go very badly, and that can affect us negatively in an excessive way.
So there we have to be careful.
What emotions scammers exploit the most
That’s correct. Let’s now talk about the spreading of these cases. The more we talk about it, the more cases around us end up increasing disarmingly.
We have said this on other occasions when we have had these conversations with you.
We continue to recall how the agencies that regulate and monitor the performance of financial markets, and they closely monitor the financial markets, every week blacklist dozens and dozens of websites that illicitly offer investment services.
But these websites continue to proliferate in the market, claiming many victims.
How is it possible that this situation cannot be stopped, Andrea?
For fraudsters, it's like a golden goose, so they continue to be prosperous and multiply once they figure out the scheme. They have to equip themselves properly to get the scam off the ground.
On our side, unfortunately, as I said before, greed causes us to lose our minds a little bit.
It's a bit like a hungry person in front of a full plate who loses control and starts to binge, right?
Here, in this case, unfortunately, you don't get to binge, but you imagine that you’re getting to the point that you will binge, but you don't.
And they are convincing because they are human beings, the fraudsters, who somehow manage to strike the right chords to make us believe that maybe this time it’s real.
They are very skillful people, probably brilliant, who can move the discussion in the direction that we go through the feeling of discouragement first, for what our present life is, and of hope, light, of what will be next, through the help of these people.
And by doing that, they make us think that we’ve finally landed in the right place, that this is the opportunity that so many others say they have had or that we've read that they have had, and that it’s our turn now.
And it's at this point we don’t want to lose this occasion.
And then scams also start with small amounts, and these small amounts are, above all, within the reach of many. Because €250 isn’t a tiny amount, but many people can afford to invest €250. That’s an amount that I often hear is the initial requested amount, and then with that €250, they build up these fake earnings, show fake reports, showing who knows what.
The €250 becomes €20.000, and so, they begin to say that if you had invested €20.000, you would have gained this amount now. And so on and so forth.
And they then cause us to expose ourselves more, giving them more and more capital, capital that will later disappear.
Again, they show us gains, which are absolutely usually bogus, through platforms.
But what do we know about that? In other words, the numbers we see are on a software, in the end, we can't say what happened and we can't say that happened.
By the way, among the most devious, there is also the fraudster who even says, “I'll give you the first €250 to invest. Then, when you’re satisfied with how the investment is going, you can increase this amount with your own money and from there precisely and then...”
The "scam in the scam" (taxes and lawyers)
Well, that's the so-called “bonus”. A bonus can indeed be used to build up this idyllic scenario… We are then shown stellar gains, and so then, of course, we’re tempted to say, “Yes, yes, that’s all true, look at that.” And we jump in.
And then it gets to the point where we might want the money back, and they think they're satisfied with taking our money.
At that point, weird stories start like, yes, yes, but look, the money is stuck here, you have to pay this fee, you have to pay that, you have to pay taxes.
Taxes. I mean, taxes have to be paid, for goodness sake. But when I invest in a UK platform, of course, I'm not going to be paying taxes to the UK government. I always pay them to the competent Tax Authorities under my tax regime.
So, if a foreign platform tells me that I have to send it the money to pay taxes, which are X% in this country, it’s clear they are obviously trying to trick me.
Then when people say to them, “Excuse me, why don't you take that sum from the money you have there in the account?"
Well, that’s when they start saying, “No, you can't do that because legally....” Or, you know, some other excuses.
And they end up tempting us and then we put the brakes on, because we want the money. Then we pour in more money to finally get our dream amount back, and well, lo and behold, then we are at the point where they disappear.
They disappear, you have no more contact with them, and that's it. No, that isn’t always the end.
Until the final twist, until the final twist when the lawyer shows up and promises to protect you from this affair and demands more money.
The English lawyer.
That's right. A fictitious company, a company of English lawyers, who is working on the investigation of these scams, and the lawyers are always working to recover the stolen money. And these lawyers, of course, want money, and then that’s the last part of the capital that disappears because they, too, of course... If it were the case that we only needed one lawyer, we would find one in our country. There are so many good lawyers here, right? And unfortunately, it's legally complicated to get to those fraudsters, to even track them down, isn't it?
In short, the only salvation is to avoid falling for the scam, end of story. Unfortunately, so many people ask me for help, you know, "I lost.... How can I get my money back?" I don't know... I'm sorry, it breaks my heart, it really does, but I don't know what to tell them, because that money is lost.
The correct approach to trading
Andrea, now we’re coming to the end of our interview. Let's now explain what the Unger Method is. In other words, what is the right way to approach the world of online trading? Even though it’s a market, a world, a field that is certainly mature and populated by qualified professional traders. In reality, there are also a number of traders in this sector that trade following rules that are just their own. We can classify them in this way. Above all, there still is the belief that has been repeated throughout this interview, which is that just by taking a few steps in this world you can get rich easily.
So, let's repeat what are also the criteria for your business, namely, the fundamental pillars of your business.
Yes, I initially chose systematic trading because I didn’t understand what was going on in the markets.
So, I chose to let the computer work for me and then rely on algorithms to do my work. The algorithms are based on my own decisions. So, I tell the computer what to do, and I do it based on research made on historical market data.
What I do is I take the historical data, study what works in the various markets, and how those markets move, and then translate that into a system that automatically does what I want it to do.
All of that means that the operation that I set up, but that all professionals set up in some way, is the reaction to what’s happening, to what you see.
Mind you, there is no one who can predict the market or knows in advance where the market is going. Everyone determines based on certain things that statistically, if the market does this, then it will do that.
Statistically, it isn’t 100%. But you can build your operation on that basis. If the market usually goes up for 2 days, then I’ll enter a position for a market that goes up. But be careful. If I’m wrong and the market starts to fall, I’m going to close the trade with a loss because I was wrong.
You know, "wait and hope" is another one of those things to avoid in the stock market or "until you close the trade, you haven't lost." No! If you have a loss, you have a loss, period.
And so, the Unger Method is nothing more than a step-by-step approach to developing these strategies. From studying to creating the rules, to implementing the system, along with so many other systems, because, as you said earlier, diversification is the key.
No matter how strong it is, a single horse can never get to where many horses can get by helping each other.
So, many strategies and many systems. But don't think this is NASA stuff. These are very trivial systems and written in an even more trivial programming language, so anyone can build these kinds of systems if they approach them step by step with the humility and the study necessary to understand these basic concepts clearly, right?
Because to say that it's super simple would be a bit of an exaggeration. And it would also detract from what I’m doing. But you certainly don't need a scientist to understand how markets work from that perspective.
And hey, it can also be fun to build these systems. I mean, I enjoy it, otherwise, I wouldn't be doing it at some point either because I’m still doing it today after 20 years.
Andrea, thank you for this interview, and, of course, I wish you the best.
Thank you, Debora, goodbye everyone.
Before we say goodbye, here is one last piece of information. For those interested in the Unger Academy and who would like to explore further the concepts we’ve listened to in this interview, Andrea's book on the Unger Method can be ordered from the Unger Academy website. It’s free and you only have to pay the shipping costs. So, enjoy the book!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.BOOK YOUR FREE STRATEGY SESSION NOW >>
Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.