How do investment scams work?
Criminals use a wide range of methods to commit fraud and scams. Investment fraud often occurs when fraudsters pressure people into buying investments that promise high returns, but in reality are either worthless or non-existent.
Fraudsters may offer investments in shares, bonds, currency, crypto assets, commodities such as gold, property developments overseas or even very niche areas such as wine.
As AI and other technologies continue to evolve, investment fraud is increasingly sophisticated and difficult to spot. Criminals are more prolific and are experts at impersonating people, organisations such as HMRC, and even the police to elicit a payment or personal information.
They may spend hours researching their victim and honing their approach, hoping they will let their guard down for just a moment. They can also be articulate and appear financially knowledgeable. They may have credible websites, testimonials and materials that can be hard to distinguish from the real thing.
An initial approach may be through a phone call, text, or email, and is not always easy to spot as criminals can use ‘spoofing’ to make numbers or emails look legitimate. Bad actors also make extensive use of social media, for instance the offer to join a WhatsApp group.
Spot the warning signs of investment fraud
Investment scammers will use a variety of techniques to try to take your money and regularly target experienced investors as well as novices. So how can you know if an investment is a scam? Fraudsters may do one or more of the following:
- Make contact unexpectedly about an investment opportunity. This can be a cold call, email, or follow up call after you receive a promotional brochure or sign up for something online.
- Apply pressure on you to invest in a time-limited offer, offer you a bonus or discount if you invest before a set date, or say that the opportunity is only available for a short period of time.
- Downplay the risks to your money or use legal jargon to suggest the investment is very safe.
- Promise tempting returns that sound too good to be true, such as offering guaranteed returns that are much better than offered elsewhere.
- Call you repeatedly and stay on the phone a long time.
- Say that they are only making the offer available to you, or even ask you to not tell anyone else about the opportunity.
How to avoid investment scams
Think carefully and reject unsolicited investment offers
Stop and think. If you’re contacted out of the blue, especially about an “investment opportunity”, chances are it’s a high-risk investment or a scam. Reputable companies are unlikely to cold call. Contact can also be by email, post or even in person at seminar or event. If you get cold-called, the safest thing to do is to hang up. If you get unexpected offers by email or text message, it’s best to simply ignore them.
Check the FCA Register and Warning List
Before investing, check the FCA Register to see if the firm or individual you are dealing with is authorised and check the FCA Watch List of firms to avoid. This is a list of firms and individuals that the FCA knows are operating without its authorisation. If you deal with an unauthorised firm, then you will have no protection from the Financial Ombudsman Service or Financial Services Compensation Scheme if something goes wrong.
Get impartial advice
Always get some independent advice before investing – even a chat with a trusted friend or family member could help. Fraudsters often try to alienate victims from their support network. You can also refer to the government’s Take Five, which offers straightforward and impartial advice to help everyone protect themselves from preventable financial fraud. It also has information on the latest common scams.
How to avoid investment and pension fraud
It is a case of adopting a zero-trust mentality to protect yourself: assume it’s a scam unless proven otherwise.
Scammers often use social media, such as encouraging people to join WhatsApp groups, or cold calling but be on your guard for all kinds of approaches as their ingenuity knows no bounds.
Be particularly wary when it comes to any large investment pots such as personal pensions. These can be a target for scammers and operators of high-risk unauthorised investments owing to the sums involved. A particular ‘red flag’ is any offer to ‘release’ your pension early – before 55. Businesses purporting to offer this are unlikely to be unauthorised or acting in your best interests. There are only a few exceptions where it is possible to take money from a pension before the minimum age such as extremely ill health or terminal illness. Outside these, the HMRC view withdrawals as unauthorised and imposes a 55% tax charge.
Other scams targeting investors involve share dealing fraud such as ‘pump and dump’ schemes. This is where criminals invest in very small stocks and then encourage others to buy them, which pushes up the price. The perpetrators then exit at an inflated valuation leaving their victims nursing big losses. Just ignore anyone trying to sell you an individual share or ‘get rich quick’ trading service.
If your personal details are compromised it makes it more likely you will receive unsolicited approaches from scammers. Be on extra high alert in these circumstances.
How to report investment fraud in the UK
If you believe you’ve fallen for a scam, it’s important to act quickly. Contact your bank to report fraud without delay on a number you know to be correct, such as the one listed on your statement or on the back of your debit or credit card. Then report it to the police on 101 and to Action Fraud.
There's more information on how to report a scam on the FCA's website. There is also general information on cybersecurity and staying safe online from us here
Recent investment scams in the UK
Artificial intelligence is a hugely exciting technological advancement that comes with great benefits, but it is sadly being used for nefarious purposes too. Investment frauds using deep fake videos of celebrity endorsements from Martin Lewis, Elon Musk, and even Taylor Swift are just some of the examples.
Video content spread on social media can be of such high quality that it is indistinguishable from the individual themselves and can be very convincing to the unwary. Fake advertisements using famous investors such as Terry Smith and Cathie Wood, who founded American investment management firm ARK Invest, are also commonplace. Often these are used to entice people to sign up to bogus information services that subsequently charge a fee.
Another avenue for scammers is to set up fake corporate social media profiles and cloned websites designed steal your data, which can then be used to gather contact details and personal information to commit identity theft, or to steal your bank or credit card details. One tactic is replying to complaints or other interactions mentioning the real company on platforms such as X or Facebook.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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