Exit Scam

An exit scam is regarded as a fraudulent activity that is executed by scammers who disappear with investor funds after a project or product launch. They lure people into the pretext of making money, often in the short term, and deceive them immediately without any explanations.

The scams are often masked as legitimate businesses and end when they receive desired funds through contributions. The true nature of the activity is revealed only after the scammers disappear. The scammers take people's greed, naivety, and lack of knowledge to their advantage. Scamming of any type and any scale may attract legal consequences.

Exit scams are activities of deceit and fraud that individuals, institutions, organizations, and businesses execute. It may involve activities of gathering funds for a new venture, accepting money for a product, or such other nature. These activities are planned and executed deliberately to deceive people and scam their money. Scammers either do not send the promised product or get the funds but never build the venture. They could have planned it for months and years to fool people and make it well organized so that people would not get suspicious about their authenticity.

A lot of effort is spent on making the entire operation look authentic. When the planners reach their goal of the desired fund, they exit. The reputation they built stirs the desire and greed of people to make money. It may also be a usual trade and may include activities such as stopping order fulfillment but continuing to accept order payments. It may also be deceitful to purchase goods without the intention to pay, etc. 

Irrespective of the nature of the fraud, different geographical jurisdictions have their own laws to deal with scamming issues. In the U.S., consumers can approach the Consumer Protection Agency to report individuals who do not fulfill their promises. 

Anything that involves dealing with money needs to be moved with caution. Given below are some points that can serve as checkpoints: 

• Impressive investment opportunity: If the scheme portrays an investment, product, or service that sounds impressive and attractive, it is always a good sign to investigate. People may sometimes get into investment opportunities without knowing it could be a Ponzi scheme. Investments need time to compound to be able to give good returns (that too if it has strong fundamentals), and hence, caution needs to be exercised. 
• Quality of promotion: There may be aggressive promotions that may seem very legitimate and convincing. People need to stop and think if they need it and look for signs of deceit in the promotions. Suppose they have a website; people can look into the language used, the company name, what it does, and their principal office and check if they really exist. 
• Customer support and reviews: In addition, they could also research the founders and whether they have any association with the plan, contact customer service, and look at how they answer, etc. People can also check for reviews regarding the company, look into forums, etc., to see people's opinions on the products and services. 

Let us look into some examples to understand the concept better:

Example #1

Imagine a business called ABC that sells fans that have a cooling capacity when ice water is poured in. It advertised online regarding the fans' features and opened multiple accounts on social media platforms to give fake reviews and give an initial push. The posts on social media went viral, and people started ordering the fans because they were cheap. They believed the fans would provide cooling. It was considered an alternative to AC. 

However, while ordering, people were asked to pay an advance first and then pay shipping charges, which made them wait for two months. The customers had to wait for months and pay an extra amount. The company members were in contact with the customers, after which they had stopped. There were no other means of contact, and they had not received the products for months. Moreover, the social media handles no longer exist. It was only then people realized that the company had no legitimate foundations and had scammed people. 

Example #2

In 2024, a cyber hacking gang called Blackcat was held responsible for a data breach at the U.S United Health Group. It is known as the Blackcat exit scam that caused disruptions across the U.S. healthcare systems.  The gang later revealed that law enforcement agencies were coming together to take legal action against them and had revealed their intention of exit (after acquiring a ransom of $ 22 million). It is speculated that Europol and Britain's national crime agency have also been part of the process.

Given below are some points that can help in avoiding exit scamming: 

• Control impulsive decision-making: One of the major disadvantages leading to irrational choices is impulsive decision-making habits. Individuals need to stop and think before getting into any schemes, buying products or services, etc. 
• Research: Cultivating a habit of conducting research before taking any major actions with money is crucial. Remembering pointers like investments cannot double in a short time, and products and services that come cheap will not have quality, which can help individuals stop and identify potential frauds. 
• Online protection: This may be of great help if money is paid online. Investing in online protective activities and products can help protect an individual's identity. Furthermore, it can prevent personal details from being stolen.
• Being aware: Individuals are required to stay alert to their surroundings and scams at all times. It may not always be possible to be vigilant, but careful listening to the news can be of great help. Scams are often repetitive, and scammers tend to perform the same act but for different audiences. A simple Google search could also save money.