The financial watchdog is warning the public to be on their guard against investment scams after new figures reveal that victims are losing on average £29,000.
Last year, fraudsters stole £197 million from unsuspecting Brits, taking on average £29,000 per scam, according to Action Fraud – the national fraud and cyber-crime reporting centre.
The most common scams reported involved ‘investments’ in shares and bonds, foreign currency exchange and cryptocurrencies.
In response, financial regulator the Financial Conduct Authority (FCA) is warning investors to be vigilant to the growing threat posed by investment scammers.
Mark Steward, executive director of enforcement and market oversight at the FCA, says: “Investment scams are becoming more and more sophisticated and fraudsters are using fake credentials to make themselves look legitimate.
“The FCA is working harder than ever to help protect the public against this threat. Last year we published over 360 warnings about potentially fraudulent firms. And we want to spread the message so we can all better protect ourselves from investment scams.”
Fraudsters targeting victims online
The FCA says that the profile of investment scams is changing with fraudsters moving away from the traditional cold call instead targeting victims online.
Fraudsters contact people through emails, professional looking websites and social media channels, such as Facebook and Instagram.
Last year, 54% of those who checked the FCA’s investment scam checker had been contacted by potential fraudsters via online sources, up from 45% in 2017.
Director of Action Fraud, Pauline Smith, says: “These statistics show that investment fraud is a major threat, with fraudsters doing everything they can to manipulate potential victims into making investments.
“Victims are often coerced or persuaded into parting with significant amounts of money and this can have a devastating impact on their wellbeing and finances.”
Investment scams are becoming increasingly difficult to spot and fraudsters are using a number of tactics to dupe victims out of their cash.
They will often make too-good-to-be-true proposals, offering high returns for little risk in a bid to trick investors.
Another common tactic used by fraudsters is to pressure prospective investors into making a quick decision on a time-limited investment.
Types of investment scam
Scams being reported reported by the financial regulator are increasingly involving fake or ‘clone’ firms set up by fraudsters.
A clone firm is a fraudulent company set up to mimic a legitimate business apparently authorised by the FCA. The website for the firm will often look like the real one and appear to have authorisation from the regulator to suggest it is genuine.
It will have a phone number that does not belong to the genuine firm which will take you through to someone trying to scam you if you call. If you enter your details into the website the fraudsters will then be able to contact you at a later date.
The surge in the popularity of cryptocurrency has led to an increase in fraud in this area.
Fraudsters will convince victims to sign up to cryptocurrency investment websites and to part with their personal details such as credit card details and driving licences to open a trading account.
After the victim has made an initial minimum deposit, the fraudster will call them to persuade them to invest again in order to achieve a greater profit.
In some cases, victims have realised that they have been defrauded, but only after the website has been deactivated and the suspects can no longer be contacted.
UK consumers are being increasingly targeted by unauthorised forex trading and brokerage firms.
These offer investors the chance to trade in foreign exchange, using a managed account where the firm makes trades on the investor’s behalf or through the firm’s trading platform.
Consumers initially receive returns to give the impression that they are making money. They are then encouraged to invest more money but after this their returns stop and their account is suspended.
Shares and bonds
With share and bond scams you will typically be contacted out of the blue. They are often run from boiler rooms where fraudsters will cold call unsuspecting victims.
Callers will often use pressure tactics, offering huge returns on overpriced shares which often do not even exist.
If you already own shares in a company, you may receive a call from someone offering to buy them at a higher price than their market value. You could also be asked to pay money upfront as security.
How to protect yourself
The FCA has a record for clone firms and also publishes alerts when it identifies one. Before investing, check the FCA Register to see if the firm or individual you are dealing with is authorised and check the FCA Warning List of firms to avoid.
FCA registered firms are unlikely to contact you out of the blue with an offer to buy or sell shares. The regulator advises investors to reject unsolicited investment offers whether made online, on social media or over the phone.
Before investing it is always a good idea to get financial advice. If you are thinking of investing in cryptocurrency make sure you thoroughly research the company you are choosing to invest with.
Not only is it extremely risky to invest in, but it is not regulated by the FCA, so you won’t be covered by the Financial Services Compensation Scheme.
Six warning signs to look out for from fraudsters
1. Unexpected contact – Traditionally scammers cold-call but contact can also come from online sources e.g. email or social media, post, word of mouth or even in person at a seminar or exhibition.
2. Time pressure – They might offer you a bonus or discount if you invest before a set date or say the opportunity is only available for a short period.
3. Social proof – They may share fake reviews and claim other clients have invested or want in on the deal.
4. Unrealistic returns – Fraudsters often promise tempting returns that sound too good to be true, such as much better interest rates than elsewhere.
5. False authority – Using convincing literature and websites, claiming to be regulated, speaking with authority on investment products.
6. Flattery – Building a friendship with you to lull you into a false sense of security.