Be aware of these Deceptive Investment Schemes
Investment swindlers swiped over £56 million from unsuspecting savers in the first half of 2024, fooling consumers into believing they were investing in genuine financial ventures run by legit professionals.
From social media campaigns, masquerading as celebrity endorsements, to unwanted text messages and emails with financial opportunities promises, con artists will stop at nothing to convince you their investing scheme is the genuine deal.
Fortunately, the number of investment fraud instances has plummeted by 41% from a peak of 6,224 in the six months leading up to June 2021 during the pandemic, to 3,647 over the same period in 2024, according to UK Finance.
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The decline, UK Finance claims, is likely due to fewer opportunities for fraudsters to reach potential victims post-lockdown, and household economies strain due to cost-of-living pressures, which make them less inclined to seek investment opportunities.
Despite the dip in numbers, it's crucial for investors to remain vigilant.
Camilla Esmund, senior manager of investment platform Interactive Investor, notes, "Social media can be a powerful force for good when it comes to financial education and interaction. However, it can also function as a scammer's playground. Remember - Investment advice online or on social media: if it sounds too good to be true, it probably is."
To avoid falling prey to these scammers' tricks, peruse our guide on the top investment cons and strategies to avoid them.
What is an Investment Scam?
A scam artist running an investment scam will try to persuade you to deposit money into a bogus fund or investment scheme.
Their persuasion methods vary. Cold callers may contact you with an offer to invest in an opportunity only available for a limited time, generating a sense of urgency and encouraging hasty decisions. Social media ads promising jaw-dropping returns often use fake celebrity images and quotes to appear credible.
A red flag in all these instances is the promise of an unusually high return on your cash that cannot be matched elsewhere.
If you fall for the ruse and transfer money into the fictitious scheme or fund, you are essentially transferring funds into the criminal's bank account.
As soon as the money is received, the scammer promptly transfers your savings to numerous different accounts, some of which may be overseas, making it harder to trace. Eventually, they withdraw the money.
Top Investment Scams to Be Aware Of
Criminals employ various methods to part you from your wealth - here are the top five scams to be on guard against.
1. Crypto-currencies Scams
With swindlers exploiting crypto-currency hype, crypto-currency scams are proliferating. These scams frequently include bogus investment opportunities promising high returns with minimal risk.
Scammers create professional-looking websites, utilize social media ads on platforms like Instagram and Facebook to lure victims, incorporating images of well-known faces and fake testimonials to appear trustworthy.
In the period between April 2020 and March 2021, Action Fraud received 558 investment fraud reports making reference to fake celebrity endorsements - with 79% citing crypto-currency as the commodity they invested in.
2. Pension Scams
Pension scammers prey on individuals seeking to access their pension savings.
They may offer free pension reviews, high-return investment opportunities, or early access to pension funds. They often use high-pressure tactics to persuade victims to transfer their pension savings into shady schemes, leaving them destitute in their retirement.
Almost £18 million was stolen through pension fraud in 2023, according to Action Fraud, with an average loss of £46,959 per person.
Action Fraud advises anyone receiving an unexpected call regarding their pension, which is illegal, to assume it is a scam and hang up.
3. Clone Firm Scams
Clone firm scams involve imposters pretending to be legitimate financial firms.
The fraudsters employ the name, address, and "Firm Reference Number" (FRN) of authorized financial bodies supervised by the Financial Conduct Authority (FCA). They create convincing fake websites and documents resembling those of genuine companies, even using the names of genuine investment managers and financial advisers.
Victims can be drawn to the fake websites by initially encountering an ad posted on social media that, if clicked on, directs them to a seemingly legitimate financial firm. Here, they'll be asked to provide personal details to receive information on the opportunity.
Eventually, once enough trust has been established, victims are convinced to transfer their savings into the criminal's bank account.
4. Boiler Room Scams
Boiler-room scams involve aggressive sales tactics to sell worthless or non-existent investments. Their nickname stems from historical telemarketing campaigns run by teams confined to boiler rooms or basements.
Scammers often cold-call potential victims, offering exclusive investment opportunities with high returns.
Last year, a boiler-room scam ring leader who pilfered £12 million from 310 victims was incarcerated for five years.
Crypto-currency, commodities, and shares were among the fake opportunities sold by the team. None of the invested funds ended up in any of the schemes.
5. Property Investment Scams
Property investment scams guarantee high returns from real estate projects.
These scams may involve fake property developments, rental schemes, or timeshares.
Victims are enticed to part with their cash after attending a free presentation about profitably investing in properties.
At the end of the sales pitch, attendees are informed that to join the scheme, they must first pay a membership fee. Once the fee is paid, no further contact is maintained.
How to Avoid Investment Scams
By staying informed and vigilant, you can protect yourself from common investment scams.
Louise Cockburn, information security awareness and culture manager at wealth manager Quilter, advises, "Always take the time to research and verify any investment opportunity before committing your money.
"Verify the credentials of anyone offering financial advice and research the firm as well, checking if it is registered with the FCA. If the firm appears on the FCA's registered information, call the company directly to verify the details of the investment."
Consult a trusted financial advisor before making any investment decision, especially one involving a significant amount of money.
Always be cautious of deals that appear too good to be true. Watch out for assurances of a high reward with minimal risk, as these are often indicative of scams.
Suspicion of unsolicited investment offers is essential, and never make investment decisions under pressure.
Listen out for claims that the investment offer is exclusive to you and being asked to keep it a secret. This is a dead giveaway you're dealing with a scammer.
Be wary if the company asks for control of your accounts or investments, particularly in cryptocurrency, and never give it.
You should also be cautious of any unexpected callers claiming to be from your bank, a legal firm, or any other party offering to help you retrieve your money. Hang up immediately - it's a scam.
Can I Get My Money Back from an Investment Scam?
In some cases, you may be able to recover some or all of the money lost after being ensnared in an investment scam.
According to UK Finance figures, over half the money stolen from investment scam victims, amounting to £30.1 million, was recovered by banks, building societies, and other payment and merchant institutions in the first six months of 2024.
As of 7 October, the Payment Systems Regulator, the U.K. body that regulates payment systems, has introduced guidelines regarding reimbursing victims of fraud where a consumer has authorized the transfer of money from their account. This is known as Authorized Push Payment fraud.
Specific transactions are not covered though, such as payments made to overseas bank accounts or payments made by debit and credit cards.
How to Report Investment Scams
Reporting investment fraud promptly is essential to help prevent the scammer from victimizing other individuals. The quicker you report it to the bank or building society that holds the account from which you transferred the money, the higher the chances are of recovering your cash.
Most institutions have a dedicated fraud team available to help quickly.
To increase your chances of getting your money back, you must report the fraud to your bank no later than 13 months following the last fraudulent payment.
You should also report the scam to Action Fraud using its online form. This will help stop the perpetrators from preying on others.
The FCA also has a consumer helpline for reporting fraud: 0800 111 6768. More information and guidance on the Take Five to Stop Fraud website can be found.
- Investors should be cautious about high-return investment opportunities, as they might be part of personal-finance scams designed to misappropriate savings.
- Scammers often masquerade as celebrity endorsers or utilize social media ads to promote investment schemes, using fake images and testimonials to appear trustworthy, especially in cases of crypto-currency or property investment scams.
- Pension scams also pose a threat, luring individuals seeking access to their pension savings with offers of free pension reviews or high-return investment opportunities, which often lead to the transfer of pension funds into shady schemes, leaving investors destitute in retirement.
