It’s clear that investment fraud is on the rise, wherever you are in the world.
According to figures published by banking organisation UK Finance, the first six months of 2019 saw losses from investment scams rise from £20.8 million to £43.4 million. That’s an increase of 108% compared with the first half of 2018.
In Australia, of all reported scams in 2020, those related to investment fraud have been the highest. Over $41 million has been lost as of October 2020.
Investment fraud is a major concern for citizens of all countries, and spanning all generations. While in the past we worried about the older generation getting scammed out of their pensions, research from the Federal Trade Commission (FTC) shows that millennials are just as likely to be victims of fraud.
A separate FTC report states that complaints about scams starting on social media more than tripled in 2019. With new scams showing up on new channels, it’s important to stay alert. Know what to look for and how to protect yourself.
Investment scams and where to find them
The first step in tackling investment fraud is understanding the kind of scams out there. As well as how and where they happen. We’ve rounded up a few of the most common.
Investment bond scams
What are they?
These expensive scams take place when fraudsters impersonate investment products – more specifically – bonds. Their aim is to collect personal details from investors, and ultimately get hands on their cash.
Where are they?
They’re promoted through Google and Facebook links, cold calling, classified adverts in newspapers or magazines, and even through fake price comparison sites. A spokesperson from Aviva explained that scammers have been tricking savers by pretending to be part of the company. Bogus sites were set up offering return rates of 5-6% on overseas investments.
The Wall Street Journal reports that cryptocurrency scams took in more than $4 billion in 2019
What are they?
Fraudsters promote attractive cryptocurrency investments to their victims. Tempted by the promise of a lucrative investment, consumers upload their personal credit card details or driving license/passport information to a fake site, in the belief they’re signing up for a trading account. Investors pay an "initial minimum deposit" to set up their account, after which they hear nothing from the fraudsters.
Where are they?
Cryptocurrency scams are typically advertised on social media platforms, or via cold calls.
Nigerian, 419, or “Advance-fee” scams
What are they?
All of these scams are the same. Often called "Nigerian" scams, because of their prevalence in Nigeria in the 1990s, they also go by the name of "419 fraud" (the relevant section of the country’s criminal code), or "advance-fee" scams. Note that the scam is not limited to Nigeria – unfortunately we see cases in many different countries around the world.
This kind of scam takes place when the criminal sends a request to a stranger, asking for help in transferring money. The sender usually has a long, often tragic, story to back up the request. In return for helping the sender, the victim is offered an appealing commission. The scammers ask for money upfront, and on receiving the funds they disappear. Some even succeed in getting more money with claims of continued transfer problems. Of course, the victim never gets their commission.
Where are they?
Nigerian scams usually originate on email.
Avoiding scams - what to look for and how to protect yourself
If it sounds too good to be true, it is too good to be true, so walk away.
This adage holds for anything from an investment, to buying goods or services. Claims such as "low risk, high returns" cannot be true – the higher the return the higher the risk. High returns will always have a high risk to them.
Guaranteed returns are not guaranteed. Any investment you make, whether it is your pension/super/401k, an investment bond or buying shares, there is no guarantee on a return, as markets fluctuate continuously.
Whether it’s a cold call or email, genuine investment companies don’t tend to contact people out of the blue. If a bank or investment company gets in touch, go directly to their website and make contact through official channels. Do not use the contact details provided by the person who contacted you. Check that the message you received is legitimate. If it’s not, report it.
Strange websites or spelling
"Clone" accounts or sites are often created using variations on an official company’s name. In the Aviva example we mentioned above, the fake websites included avivainvestorsholdings.com, avivauk.com and avivabonds.com. They looked legitimate, but had nothing to do with Aviva.
Bad spelling or grammar can also indicates a scam, whatever the channel.
Suspicious bank or currency setups
If you’re being asked to send money to an account based in one country, but the base currency doesn’t match, that should ring alarm bells. For example, an account set up in euro, but based in Thailand. Again, never send money to an unknown account. Avoid sending money to an individual’s account for any investment.
Fraudsters often seek to confuse victims with complex jargon, in the hope that the investor will either assume the contact is legitimate, or won’t feel qualified to question its authority.
Pressure to complete the transaction
Another trick employed by scammers is creating a false sense of urgency. They’ll send aggressive messages to make you transfer money immediately, or else the offer will expire. It forces victims into a panicked situation where they might not feel they have time to make proper checks. Take your time to consider the investment and do your research, better to be safe than lose your life savings.
Don’t be intimidated by the broker/salesperson that you are speaking to, keep asking questions until you are comfortable. Take any research they give you or references as only one source and do your own research. Company news releases aren’t of any use and you should not accept that as firm evidence. Don’t rely on a friend’s recommendation – your friend may also be the unwitting victim of a scam – so make sure to complete your own due diligence prior to taking any further steps.
Ask for the company details, like a company registration number and do some background research. For example in the UK the companies office allows you to do free searches. If the company is newly set up or has been dormant and is only starting to trade now, investigate further.
Investigate the person selling to you
Remember that the person selling to you is motivated to be your friend and to convince you that this is an amazing opportunity. They will gain your trust and appear credible. Take the time to research this person (even if a friend introduced you). What are their qualifications?, can you validate this on an independent 3rd party website?
Do not allow them to "coach" you on how to respond to questions you may receive from a financial institution when opening an account or setting up a transaction even if you are advised "it will save you hassle and I have a 'friend'". Never allow them to set up an account for you with a financial institution. Any legitimate financial institution will want to deal directly with you. Do not give them access to your computer, laptop, tablet or mobile phone.
Get impartial advice
Always talk through your investment options with an unbiased finance professional, before making any investment decisions. Make sure you fully understand all risks involved.
Make your checks
Firms providing regulated financial service must be appropriately regulated in the country in question. Find out which regulations apply in your country, and make sure that any company you do business with is compliant.
Use fully regulated transfer solutions
If you’re exchanging money as part of an investment, always use regulated solutions. CurrencyFair is fully regulated and funds are ring-fenced and you can always check with Central Banks in local and international jurisdictions which financial companies are regulated.