We’re all too familiar with the scam email request from Nigerian oilfields or stressed Royal who can’t get their money out of the country. But with fraud in the UK estimated to be in excess of £190 Billion per annum and with only £1.9 Billion being detected there is obviously a need to ensure any investment you consider is checked very carefully indeed.
A recent FCA report highlighted the care needed when considering investments as one type of investment scam becomes widely known it fades from vogue for fraudsters, but they are swiftly replaced by new, exciting, complex-sounding investment products with which to entice the unwary. These now include cryptocurrencies, binary options, and contracts for difference (CFDs).
While these investments can be genuine, albeit risky forms of investment, they can sometimes be a scam.
Over the last year or so you would be hard-pressed to avoid hearing about the unprecedented heights reached of Bitcoin – and the dozens of other cryptocurrencies that cropped up as a result – you’ll also be aware of the punishing crashes in its value too.
Cryptocurrency is an inherently risky market and direct investment in such currencies is unregulated in the UK, meaning you won’t have the protections afforded you by the Financial Services Compensation Scheme or Financial Ombudsman Service if things go wrong.
Cryptocurrency is also regularly used by serious criminal organisations to ‘launder’ money and scams are commonplace.
Binary options and contracts for difference
Binary options and contracts for difference are two other types of investment that are common vehicles for fraud. Binary options allow customers to bet on the expected price of a share, commodity, currency or index. Similar to binary options, CFDs let users bet on how much the price of an asset will rise or fall.
Sold via a platform as an investment on your behalf or as opportunities to buy and sell investments to generate returns, these scams will often entice the user with higher-than-average initial returns, only to deny access if you try to withdraw your money. The fraudsters often promote themselves online and via social media channels, and use images of luxury items like expensive watches and cars, to tempt people to invest in their scams.
Binary options scams alone have been identified as one of the biggest frauds in the UK currently, with losses reported to Action Fraud totalling £32m in 2017.
Share and bond scams
Share and bond scams are closest to what you might expect when you think of an investment scam. You might be contacted out of the blue, maybe from a high-pressure call centre or ‘boiler room’. You’ll be offered the chance to buy shares or bonds in such a way that practically guarantees a huge return.
However, these will likely be tremendously overpriced, if they exist at all. You may also be asked to pay money upfront as a form of security. Share and bond scams are often carried out by clone firms (see below). The largest loss to a share scam recorded by police was £6 million.
A clone firm is a fraudulent company set up to look like a well-recognised financial services firm that is authorised by the FCA. The website will have a telephone number that does not belong to the genuine firm and instead puts you through to someone working for another operation altogether.
Remember, it’s not just your money that is valuable to fraudsters – it’s your information too. If you fill out a contact form on a clone firm website, for example, the fraudsters instantly have a log of your name, email address, telephone number and maybe more. This can be used to contact you in the future and can even be added to databases and sold on.
A recent IYE investigation found over 200 cloned websites in a state-sponsored scam
The FCA keeps a record of clone firms and publishes alerts when it has identified one, but it’s so easy to set up a website that it’s possible for clones to pop up as they’re shut down. It’s best to check the details about the firm provided on the FCA Register to ensure that you are dealing with the legitimate and authorised firm.
Scammers toil endlessly to refine their tactics, but there are some red flags that should alert you to the possibility that what you’re hearing is a potential scam.
Some of the methods scammers use include:
- Promising high returns for little risk
- Fake reviews and testimonials on their site to lend an air of authenticity;
- Pressure tactics, like telling a potential victim they must make a decision right away or lose
- the opportunity;
- Flattery, such as telling a potential victim they are a savvy investor
- Posing as a legitimate firm, perhaps saying its information on the FCA’s
- Register is incomplete and giving you different contact details;
- Fake non-disclosure clauses to scare victims out of telling others about their investments – for example asking someone they trust if it looks dubious
- Implying a lot of other people want in on the opportunity or have invested
What can you do?
IYE is committed to ensuring our clients do not invest in suspect schemes. We have a range of investigative services to suit clients both large and small. Our aim at IYE is to ensure our clients do not fall victim to fraudulent investments in the first instance. We are happy to discuss and fully investigate any potential investment and provide clear, simple to follow advice on the legitimacy of a proposed investment along with the people associated with it. If you’d like to undertake full due diligence to ensure the investment you’re considering is genuine, please call us on: +44 (0)20 8914 7923 or use our contact form on the IYE Global website.