Online Investment Fraud

Investment fraud is a big problem. Data relating to 2018 figures from Action Fraud reports over £197 million was lost in investment scams during the year. Over half the recorded scams occurred online. Fraudsters, whether operating online or person-to-person, are so successful due to their persuasive tactics and believable scenarios, which can make it hard to spot the fake from the real thing.

Men aged 36-55 are reported to be most at risk, as, according to the report, they are recognised as being less risk-averse than other sectors of society, they act more spontaneously and have the disposable income to invest. However, everybody is at risk of falling under the spell of an investment fraudster so being able to spot the signs of fraud is the first step to being able to walk away.

What is investment fraud?

The term investment fraud covers any fraudulent situation affecting a person or company’s investment. Any scams that purport to aid potential investors to start or increase their portfolio but in reality are being used to deceive people out of their money is investment fraud. 

Investment fraud is often characterised as a cold caller offering you an irresistible investment deal that is non-existent or worthless. The investors hand over their cash and occasionally will be contacted again to ask for a second investment as the first is performing so well. Eventually, the scammer will close the account and disappear with the money. The investor is left with no money and no investment.

Most of these frauds are run out of offices called boiler rooms, which are glorified outbound call centres. They use a list called a ‘sucker list’ of potential investors, a large percentage of which are likely to be over 65. It gets its name from the intense selling tactics which are akin to the pressure in a boiler room. The scams cover a range of different products and services but all are designed to be believable.

Biggest investment frauds

There are many different types of investment scams, both on and off-line, so to help protect yourself against being embroiled it is worth being aware of the main types to be on the lookout for. 

  • Boiler room scams – these are the traditional cold calling types of investment scams, when someone tries to get the potential client to invest in a non-existent product, commonly shares and bonds. Everything is set up like a professional business so any digging by those being targeted will put them at ease and reassure them it is a proper company. Once the scam has been completed, the fake company will shut up shop quickly and disappear.
  • Pyramid schemes – pyramid schemes work on the premise of investing cash and then recruiting other people to do the same. A well-known version is the Ponzi scheme (named after Charles Ponzi), the originator of this type of fraudulent investment. The principle is to use money from new investors to pay off older investors until the scheme eventually caves in with many people left out of pocket. The original promoters walk away with the majority of the cash.
  • Advance fees – investors are asked to send money upfront to secure the deal, either in the form of a deposit or refundable fee. Of course, the deal never materialises and the investors have lost their cash.
  • Forex trading – investors make money on foreign currency by buying and selling at just the right time, when the change in the exchange rate is in their favour. It can be difficult to predict and therefore risky, so fraudsters have tapped into this by offering to invest for clients using their knowledge and skills and make a profit for them. These schemes are often operated from abroad and the investor may be asked to transfer their investment stake into an offshore account, where it becomes impossible to get back.
  • Cryptocurrency – digital currencies such as bitcoins are targeted for investment fraud. Fraudsters promote the investment (often through social media) using fake endorsements. After an initial outlay, the investor is told that they have made a profit and to invest again to capitalise on it. People then also introduce others to the scheme. The account is eventually closed and the fraudster disappears with the cash.
  • Prime bank investment – scammers claim to be partnered with legitimate and well-known financial companies.  They make people believe they are putting their money into an endorsed programme.
  • Stock market – unprofitable or non-existent stock market schemes are sold by making them out to be much better than they really are. There are different types of stock market fraud, including:
    • Wash trading – this involves using two different brokers to buy and sell at the same time, which gives potential investors the impression that something big is about to occur due to the stock being very active.
    • Match-trading – like wash-trading but a computer is used to match up same-value shares which are then bought and sold to up the level of activity.  Brochures are produced yearly to help people decide whether to invest but these usually either fake or misrepresent the results.

Whatever type of investment fraud is used, the result is the same. By the time anyone realises something is amiss, it is too late, as the promoter has closed up and gone.

bitcoin digital cryptocurrency

Common online investment scams

Online investment scams tend to be the same or similar to offline scams apart from the fact the methods to attract potential investors are focussed through online activity. The rise of the internet has made it easier for a fraudster to look real and present a professional front to the world via a well-constructed website. The internet also offers a variety of tools to market these investment frauds, such as chat rooms, newsletters and emails, bulletin boards and social media platforms. Offshore scams have been easier to set up through the internet as policing fake companies outside of the country can be challenging.

According to the FCA, online investment scams are becoming more popular with fraudsters than cold calling on the telephone, so being extra vigilant online is now more important than ever.

Why people fall for investment frauds

Most investors like to think they would not fall for an investment scam but because of the sophisticated techniques that investment fraudsters use, it can be difficult at first glance to spot a scam. A lot of effort has gone into creating believable frauds that will lure unsuspecting people in, but it is possible to get a feel for whether a deal is genuine or not.

People are attracted to the thought of a potentially large payout as money is always an attractive option that can blind people to certain realities, creating a level of gullibility and vulnerability. This can lead to quick, on-the-spot decisions as people lose touch with reality in the heat of the moment at the promise of great things to come. 

In chasing the buck, potential investors can be over-optimistic and look at everything through rose-tinted glasses, instead of analysing it objectively. There is also an overriding tendency to trust others, particularly if they are brimming with confidence and look authoritative. Fraudsters can make potential clients feel special and play to their egos. Bearing all this in mind, it’s crucial to look at what is on offer as objectively as possible.

How to spot investment fraud

One of the first things to be aware of is if you are cold-called about an opportunity. At this stage, it could be genuine, but instant alarm bells should be ringing and putting you on alert. You may have already received glossy and professional looking material in the post. The caller may say they are checking to see if you received it, but remember that anyone can produce some good-looking sales material.

The deal offered is usually very competitive, with better than average interest rates and fantastic returns. It will probably have an extra bonus with a time-limit which the fraudster will use to pressurise you into making a decision today. This is often accompanied by the fact that this deal is only on offer to you and they request that you don’t tell others as there is limited availability.

Certain products are often used in investment frauds, so be aware if you are offered to deal in land, carbon credits, wine or jewels as these are commonly quoted, as well as stocks and shares. There are very genuine investments in these commodities but they should be carefully investigated before making a commitment.

When questioned on whether there is any risk to the investment, the caller will breeze over this and downplay it, or try to confuse you with legal-sounding terminology. They will keep you talking for a long time if you are sitting on the fence and will call you back several times. If you are not committing and want more information, they may give you the details of a professional website, complete with contact details and testimonials.

So be aware of pressurised tactics, today only offers, anything that sounds too good to be true, promoters who don’t answer your questions fully and those who downplay any potential risk.

hang up on cold calls to avoid investment fraud

How to avoid investment fraud

The best way to avoid investment fraud in the first instance is not to receive cold calls. Just put the phone down and report the call to the service provider who can block the number. If someone does door-to-door cold calling, send them away, regardless of how tempting their offer might sound. If an offer pops up on your computer screen while you are browsing, delete it.

If the worst happens and you do get embroiled in an investment conversation, never give out your bank details or your personal information. If you refuse to give these out, they may give you a number to ring that will enable you to verify them. This, however, could also be a false line so don’t completely trust it. Try and find out your own unbiased information and check that the website and business are genuine. The website should carry contact details. Do remember scammers will go to massive lengths to make themselves look real. Check them out on companies house, or on the Better Business Bureau. Make sure you use multiple methods of checking.

Never sign up on the day. Tell them you want to check it through with your financial advisor and/or legal aid first. If you are interested in making an investment then do your own research and use the FCA’s scam check tool. Check out the person selling the investment and find out what you can about them. Get to know them and verify their licenses and history. Pay attention, be vigilant and try not to get carried away with the excitement of the moment.

At the end of the day, if it seems too good to be true, then it probably is. Use common sense in all transactions. 

How to investigate investment fraud

If despite all your precautions and best intentions, you or someone close to you becomes a suspected victim of investment crime, then it will need to be investigated. You can report to the Action Fraud squad on 0300 123 2040 or on their website.

Tell your bank if you have given out your bank details as soon as you can. Fraudsters work fast so you need to let your bank know before any money moves out of your account.

Reporting a scam to the FCA will also help protect others from becoming victims.