Skip to main content
#scams #trust #transparency #ethics

The AI Trading Scam Crisis: How to Spot Them & Why We're Different

Luke Lamb
The AI Trading Scam Crisis: How to Spot Them & Why We're Different

The AI Trading Scam Crisis: How to Spot Them & Why We’re Different

Published: October 18, 2025 | Read time: 10 minutes

$1.7 billion.

That’s how much money customers lost to fraudulent trading schemes in 2024 alone, according to CFTC reports.

And it’s getting worse.

With the explosion of AI hype, scammers have a new playbook: slap “AI-powered” on literally anything, promise unrealistic returns, and watch the money roll in.

99% of AI trading platforms are scams. Yes, really. Ninety-nine percent.

I didn’t make that number up. It’s what regulators are finding as they investigate this growing crisis.

If you’re thinking about using an AI trading platform (including ours), you NEED to know how to spot the scams.

Because the alternative is losing everything.

The State of the Industry: A Dumpster Fire

Let’s start with the harsh truth: the AI trading industry is overrun with criminals.

Here’s what regulators are seeing:

The Numbers

  • $1.7B stolen from customers in 2024 (CFTC)
  • 99% scam rate among AI trading platforms (regulatory investigations)
  • 500%+ increase in AI-related fraud complaints since 2023
  • Average loss per victim: $47,000
  • Recovery rate: Less than 5%

Translation: If you get scammed, you’re not getting your money back.

The Tactics

Scammers use a playbook that’s depressingly effective:

  1. Fake AI Claims

    • “Our AI has 98% win rate!”
    • “Machine learning predicts market moves!”
    • No actual AI. Just random trades or no trades at all.

  2. Guaranteed Returns

    • “10% monthly returns guaranteed”
    • “Risk-free profits”
    • “Your money is insured”
    • If it sounds too good to be true, it is.

  3. Social Proof Manipulation

    • Fake testimonials
    • Photoshopped bank statements
    • Paid influencers who’ve never used the product
    • Fake user counts

  4. Urgency Tactics

    • “Only 10 spots left!”
    • “This offer expires in 24 hours!”
    • “Early access bonus ends today!”
    • Scams always rush you to prevent thinking.

  5. Withdrawal Barriers

    • “We need to verify your identity” (stalling)
    • “There’s a 30-day lock-up period” (theft)
    • “Processing fees required” (more theft)
    • Legitimate platforms make withdrawals easy.

Recent Scams: Real Examples

Let me share three real scams from the last 12 months. Names changed to avoid legal issues, but these are 100% real.

Scam #1: “AI Quantum Trader”

The Pitch:

  • “Quantum computing + AI = 300% annual returns”
  • Sleek website with fake press coverage
  • $5,000 minimum investment

The Reality:

  • No quantum computing (it’s barely commercial yet)
  • No actual trading happening
  • Ponzi scheme: early withdrawals paid from new deposits
  • $23 million stolen before shutdown
  • Founders vanished to a non-extradition country

Red Flags Missed:

  • ✗ No regulatory registration
  • ✗ Guaranteed returns (illegal promise)
  • ✗ No proof of trading activity
  • ✗ Anonymous team
  • ✗ Offshore jurisdiction

Scam #2: “TradeBotAI Pro”

The Pitch:

  • “Copy our AI’s trades automatically”
  • Free trial, then $99/month
  • Influencers promoting on YouTube

The Reality:

  • Bot made random trades to generate “activity”
  • No profitable strategy whatsoever
  • Churned accounts with high-frequency trades (collecting fees)
  • $8 million in customer losses before regulatory action
  • Influencers were paid affiliates who never used the product

Red Flags Missed:

  • ✗ Paid influencers without disclosure
  • ✗ No track record verification
  • ✗ Obscure broker partnerships
  • ✗ Complicated fee structure
  • ✗ No risk disclosure

Scam #3: “CryptoAI Signals”

The Pitch:

  • “AI-generated crypto trading signals”
  • Free Discord group, $500/month for “pro” signals
  • Screenshots of massive gains

The Reality:

  • Photoshopped screenshots
  • Copy-pasted signals from free sources
  • Pump-and-dump scheme on low-cap coins
  • Founders bought before signal, dumped on members
  • $4 million stolen through insider trading

Red Flags Missed:

  • ✗ Anonymous team (red flag #1)
  • ✗ No regulatory compliance
  • ✗ Unverifiable results
  • ✗ Low-cap coin focus (easier to manipulate)
  • ✗ Discord-only communication (avoids paper trail)

The Psychology: Why Smart People Fall for Scams

You might be thinking: “I’m not stupid. I wouldn’t fall for this.”

That’s exactly what makes you vulnerable.

Scammers exploit cognitive biases, not intelligence. Here’s how:

1. Authority Bias

“Dr. [Name], PhD in Finance, founded this platform.”

  • PhD might be fake or irrelevant
  • Even real credentials don’t prevent fraud (see: Bernie Madoff)
  • Smart people respect authority and question less

2. Social Proof

“10,000 users trust us with $500M in assets.”

  • Numbers are made up
  • “Users” are bot accounts
  • Social proof triggers “if everyone’s doing it, it must be safe”

3. FOMO (Fear of Missing Out)

“Our users made 43% last month. Don’t miss out!”

  • Creates urgency
  • Bypasses logical thinking
  • “I need to act NOW or lose opportunity”

4. Confirmation Bias

You WANT to believe passive income is possible.

  • You seek information that confirms belief
  • You ignore red flags that contradict it
  • “This time it’s different because AI”

5. Sunk Cost Fallacy

After investing $5,000, withdrawal is “pending.”

  • “I’ll just wait a little longer”
  • “If I withdraw now, I lose the gains”
  • Scammers exploit reluctance to admit mistake

Smart people fall for scams because scammers exploit psychology, not intelligence.

Red Flags: How to Spot a Scam

Here’s your checklist. If you see ANY of these, run:

🚩 Immediate Disqualifiers

  1. Guaranteed returns

    • “10% monthly guaranteed”
    • “Risk-free profits”
    • No one can guarantee returns. Period.

  2. Anonymous team

    • No real names
    • Stock photo profile pictures
    • Unverifiable backgrounds
    • Legitimate founders show their faces.

  3. No regulatory registration

    • Not registered with SEC, FINRA, or equivalent
    • Operates from offshore tax havens
    • “We don’t need registration because [excuse]”
    • If they’re handling money, they need registration.

  4. Unverifiable track record

    • Screenshots instead of audited statements
    • “Backtested” results (meaningless)
    • Cherry-picked winners
    • Real platforms provide verifiable, third-party audited data.

  5. Withdrawal difficulties

    • “Processing” for weeks
    • Surprise fees to withdraw
    • “Verification” requirements only when withdrawing
    • Legitimate platforms make withdrawal easy.

🚨 Major Warning Signs

  1. Pressure tactics

    • “Limited spots available”
    • “Offer expires in 24 hours”
    • “Act now or miss out”
    • Real opportunities don’t require rushed decisions.

  2. Unrealistic claims

    • “98% win rate”
    • “Never had a losing month”
    • “Outperforms the market consistently”
    • Even the best funds have losing periods.

  3. Paid influencer promotion

    • YouTubers with affiliate links
    • TikTokers reading scripts
    • No #ad disclosure
    • Legitimate platforms don’t need paid shills.

  4. Complicated fee structure

    • Hidden fees
    • Performance fees on unrealized gains
    • Withdrawal penalties
    • Transparency means simple, upfront pricing.

  5. AI buzzword salad

    • “Quantum neural networks”
    • “Blockchain machine learning”
    • Impressive-sounding nonsense
    • Real AI companies explain their tech simply.

⚠️ Proceed with Caution

  1. New platform (< 1 year)

    • Not automatically a scam
    • But requires MORE scrutiny
    • Demand transparency and proof

  2. High minimum deposits

    • $5,000+ minimum
    • Legitimate platforms serve all users
    • High minimums = fewer victims to investigate

  3. Discord/Telegram only

    • No official website
    • No company registration
    • Harder to trace and prosecute

How Regulators Think: The SEC’s Perspective

I spoke with a regulatory attorney who works on fraud cases. Here’s what they told me:

“The #1 red flag for us is guaranteed returns. If someone promises guaranteed profits in trading, they’re either lying or running a Ponzi scheme. Often both.”

Regulators look for:

  1. Registration Status

    • Is the platform registered? (Look up on SEC.gov)
    • Are they complying with Know Your Customer (KYC) rules?
    • Do they file required reports?

  2. Track Record Verification

    • Are results audited by a third party?
    • Can performance be verified independently?
    • Are risk disclosures accurate?

  3. Customer Fund Segregation

    • Are customer funds in separate accounts?
    • Can the company access customer money directly?
    • Is there third-party custody?

  4. Marketing Claims

    • Are they making illegal promises?
    • Are risk disclosures prominent?
    • Are influencers disclosing compensation?

If regulators would flag it, you should avoid it.

Why We’re Different: The Local AI Finance Approach

Now that you know what scams look like, let me explain why we’re NOT one.

1. No Guaranteed Returns

We will NEVER promise guaranteed returns. Why?

Because it’s impossible. And illegal.

What we promise:

  • Education and tools
  • Transparent processes
  • Community support

What we DON’T promise:

  • Specific returns
  • Win rates
  • “Guaranteed” anything

2. Full Team Transparency

  • My name: Luke Lamb (real person, real background)
  • LinkedIn: [link to profile]
  • Email: info@localaifinance.com (I respond personally)
  • Location: [City, State]

You can verify I’m real. You can find me. You can hold me accountable.

3. Building in Public

  • Public roadmap on our website
  • Development updates shared weekly
  • GitHub repository (coming soon)
  • Discord community with direct founder access

Scammers hide. Legitimate founders build in public.

4. Education First, Trading Later

You CAN’T trade real money until Level 26+.

Why? Because we prioritize education over exploitation.

  • Levels 1-10: Paper trading only
  • Levels 11-25: Advanced practice
  • Level 26+: Certification required

We succeed when you LEARN, not when you trade.

5. No Payment for Order Flow

Robinhood’s business model is PFOF: selling your order flow to high-frequency traders.

That’s why they want you to trade more (more data to sell).

Our model: Simple subscription ($0, $15/mo, $50/mo)

We make money when you find value, not when you trade.

6. Local AI = Privacy Guaranteed

We use local-first AI architecture.

That means:

  • Your data processes on YOUR device
  • We never see your trades, balances, or strategies
  • Even if we wanted to steal data (we don’t), we can’t

Your privacy is protected by design, not policy.

7. Regulated Broker Integration

When you’re ready for live trading (Level 26+), we integrate with:

  • Alpaca (SEC-registered, FINRA member)
  • Interactive Brokers (40+ years, $10B+ in customer funds)

We don’t custody your money. Ever.

Your funds stay with regulated brokers you control.

8. Honest About Risks

Trading is RISKY. You can lose money.

Here are the honest statistics:

  • 95% of new traders lose money in their first year
  • 80% quit within 2 years
  • Even profitable traders have losing months

Our goal: Flip those statistics through education.

But we’ll never pretend trading is easy or risk-free.

9. Third-Party Verification (Coming)

Once we have live trading users, we’ll provide:

  • Third-party audited performance reports
  • User-submitted verified results
  • Transparent methodology

We can’t provide this NOW because we’re in beta. But we’re committing to it publicly.

10. Refund Policy

Don’t like the platform? Cancel anytime.

  • No lock-up periods
  • No cancellation fees
  • No “processing delays”
  • Cancel = immediate access termination + no future charges

Simple. Transparent. Fair.

Questions to Ask Before Using ANY Platform

Before you trust a trading platform (including ours), ask these questions:

Due Diligence Checklist

✅ Who runs this company?

  • Can you verify their identity?
  • Do they have relevant experience?
  • Are they hiding?

✅ Where is the company registered?

  • Which jurisdiction?
  • Can you look up the registration?
  • Is it a tax haven? (red flag)

✅ How do they make money?

  • Subscription? (transparent)
  • PFOF? (questionable)
  • Performance fees? (check structure)
  • Unclear? (red flag)

✅ Where does my money go?

  • Direct to a broker I control? (good)
  • To the platform’s bank account? (red flag)
  • To an offshore account? (run away)

✅ Can I withdraw anytime?

  • Test with a small amount first
  • Are there fees or delays?
  • Do they make it difficult?

✅ What are they promising?

  • Education and tools? (legitimate)
  • Guaranteed returns? (scam)
  • “Secret” strategies? (red flag)

✅ Is there independent verification?

  • Third-party audits?
  • User reviews on neutral platforms?
  • Regulatory filings?

✅ How do they handle risk?

  • Clear risk disclosures?
  • Education about losses?
  • Or just focus on wins?

If you can’t answer these questions, don’t invest.

What to Do If You’ve Been Scammed

If you think you’ve been scammed, act fast:

Immediate Actions:

  1. Stop sending money

    • Don’t pay “fees” to withdraw
    • Don’t send more to “unlock” funds
    • The money is likely gone

  2. Report to authorities

  3. Document everything

    • Screenshots
    • Emails
    • Bank statements
    • Communications

  4. Alert your bank

    • Report fraudulent charges
    • Stop recurring payments
    • Ask about chargeback rights

  5. Warn others

    • Post on Reddit, Twitter, forums
    • Share your story (anonymously if needed)
    • Prevent others from losing money

Recovery Reality:

I hate to be pessimistic, but: recovery is unlikely.

Most scammers:

  • Operate from countries without extradition
  • Use cryptocurrency (hard to trace)
  • Shut down and relaunch under new names
  • Spend/hide the money quickly

The best defense is prevention.

That’s why I wrote this guide.

Final Thoughts: Trust But Verify

I want you to use Local AI Finance. Obviously.

But MORE IMPORTANTLY, I want you to NOT lose money to scams.

So even if you never use our platform, please:

  1. Question everything

    • No guaranteed returns
    • No anonymous teams
    • No rushed decisions

  2. Do your homework

    • Verify registration
    • Check team backgrounds
    • Read independent reviews

  3. Start small

    • Test platforms with minimal funds
    • Withdraw to verify it works
    • Scale slowly if legitimate

  4. Trust your gut

    • If it feels wrong, it probably is
    • FOMO is a red flag, not an opportunity
    • Legitimate platforms don’t rush you

The trading industry needs more skepticism, not less.

Join the Movement: Demand Transparency

The only way to fix this industry is to:

  1. Reward transparency (support platforms that build in public)
  2. Punish scams (report and warn others)
  3. Demand regulation (contact your representatives)
  4. Educate others (share this guide)

At Local AI Finance, we’re committed to:

  • Building in public
  • Being transparent about everything
  • Educating before monetizing
  • Aligning our success with yours

If you catch us violating our principles, call us out.

We’re not perfect. But we’re honest.

And in this industry, that’s revolutionary.

Want to learn more? Read our mission statement →

Join the beta: Sign up for January 2026 launch →

Have questions? Email me directly or join our Discord

This is the second in our educational series. Next up: “What 1,000 Hours of Gaming Taught Me About Trading Psychology.”

Subscribe to our newsletter to get notified when new posts go live.

Resources

Check Registration:

Report Fraud:

Learn More:

Stay safe out there. 🛡️

Share this post

Twitter LinkedIn Reddit

Ready to Master Trading with AI?

Learn to trade the right way. Start with education, practice with paper trading, then trade live with AI guidance.

Join Beta Waitlist Explore AI Agents
Back to Blog