Investment scams and how they work

Investment fraud produces some of the largest individual financial losses of any crime, and the tactics are consistent enough to be recognisable.

The recognisable features

Which appear across most cases.

Unsolicited contact: a call, message, email or social media approach you did not initiate.

Returns described as high and simultaneously low risk, which is a combination that does not exist.

Time pressure: an opportunity closing, an allocation running out.

Professional-looking materials, which are trivially produced.

Testimonials and social proof.

Difficulty withdrawing once invested, frequently with fees or taxes demanded before withdrawal is permitted.

And a request to keep it confidential.

The common vehicles

What they claim to be.

Cryptocurrency investment and trading platforms.

Foreign exchange and contracts for difference.

Unregulated bonds and mini-bonds, which have produced substantial consumer losses in several markets.

Property and land investments, including plots without planning permission.

Carbon credits, storage pods, car parking spaces and similar alternative investments.

Pension liberation and transfer schemes.

Ponzi structures paying early investors from later investors' money.

And clone firms using the identity of genuine authorised companies.

Clone firms specifically

Which defeat casual checks.

Fraudsters copy the name, registration number and details of a genuinely authorised firm.

Which means a victim checking the register finds a firm and believes it verified.

The protection is to contact the firm using the details on the regulator's register rather than the details supplied to you, since the fraudster controls the latter.

Regulators publish warning lists of known clones and unauthorised firms, which are worth checking.

The pension version

Where losses are largest.

Offers of a free pension review from an unsolicited approach.

Claims of unusually high returns from unusual investments.

Offers of early access to pension savings before the permitted age, which generally trigger substantial tax charges even where the underlying scheme is real.

Pressure to transfer quickly.

And overseas schemes with limited regulation.

Losses in these cases are frequently total and unrecoverable, and the tax charge remains payable.

Recovery fraud

The second wave.

Victims are contacted by people claiming to be able to recover their losses, for a fee or for tax payable in advance.

The contact frequently claims to be from a regulator, a law firm or a government agency.

Victims are targeted repeatedly, sometimes using lists of previous victims.

No legitimate recovery service requires an upfront fee, and regulators do not charge for their services.

The checks that prevent most of it

Short and effective.

Check the firm on your national regulator's register, using the contact details on the register.

Check the regulator's warning list.

Refuse all unsolicited approaches about investments, entirely and as a rule.

Take time: no legitimate opportunity requires a decision today.

Discuss it with someone else, since isolation is a deliberate tactic.

Ask whether the investment is covered by any compensation scheme, and check that independently.

And be sceptical of anything you cannot explain to someone else after reading the material.

Why intelligent people are caught

Worth understanding.

Victims are not systematically less intelligent or less educated, and studies of victimisation find that confidence in one's own judgement can increase vulnerability.

The techniques exploit universal psychology: authority, reciprocity, scarcity, social proof, commitment and liking.

Financial pressure, bereavement, isolation and life transitions increase vulnerability.

And the approach is frequently developed over weeks or months, which builds trust before any money is requested.

Which means treating this as something that happens to other people is itself a risk factor.

If it has happened

What to do.

Contact your bank immediately, since speed affects recovery.

Report to the national fraud reporting body and to the financial regulator.

Report to the police where appropriate.

Keep all records and correspondence.

Check whether any compensation scheme applies, which depends on whether the firm was authorised and the product covered.

Do not pay anyone offering recovery.

And tell someone, since shame prevents reporting and reporting is what enables both recovery and prevention for others.

General information only, not investment advice. Check any firm on your national regulator's register and warning list, and refuse unsolicited investment approaches.