Investment scams
Investment scams will always try to appear more attractive than conventional investments, boasting unrealistic returns on your outlay. Remember - if it looks too good to be true, it probably is!
- What are investment scams?
- Goods sold as investments
- Shares
- Advertisements for investments
- Tips to remember about investments
- Reporting investment scams
The word "investment" is used in connection with a wide range of schemes offering income, interest or profit in return for a financial outlay. It is often used loosely, and sometimes misleadingly, in order to disguise the true nature of a scheme; eg pyramid schemes, chain letters or other types of scheme where a return depends on persuading others to join.
For the purpose of this factsheet, "investment" is used in connection with the purchase of something - such as high value or rare goods, stocks and shares, property - in the expectation that what is purchased will increase in value, and even provide an exceptional return compared to other forms of investment.
It is not always understood by potential investors that there is a wide range of so-called investments which are unregulated. This means that they are not traded by authorised investment brokers, who might be expected to operate to professional standards. Nor are they traded on a regulated exchange, which means that their current value and prospects for appreciation are difficult or impossible to assess through any of the normal channels. There is no guarantee that the market will still be functioning when you come to realise your investment and almost no chance of any compensation if the investments have been mis-sold. This all creates opportunities for the unscrupulous to mislead and trap the unwary.
Investment scams will always try to appear more attractive than conventional investments, and so the return on the outlay is always likely to be exaggerated or unrealistic. It follows that the essential message which applies to other scams applies equally to investments - If it looks too good to be true, it probably is!
If you believe you are the target of a scam or would like further advice, contact Consumer Direct.
High value goods such as alcohol (eg, champagne), paintings or jewellery are usually promoted on the premise that they will perform better than other investments, such as shares traded on the Stock Market.
One common characteristic is that the potential investor does not or cannot approach the company offering the "investment". The introduction is almost always by telephone cold calling or email, although the approach frequently comes in the form of a seemingly innocent offer of information. It is common for the scam operators to use shareholder lists to get the names of investors and then offer them a free report if the potential investor confirms his or her address and provides a telephone number.
The potential investor then receives a brochure, or a phone call followed by a brochure. The brochure contains limited and often misleading information about the investment prospects of the goods on offer, and may be accompanied by press cuttings which appear to indicate that the major newspapers have reported that you can't lose by investing. There may be a graph showing how investment in the goods out-performs traditional stocks and shares. This is misleading because it deals only with capital gain on the stock market and takes no account of the dividend income derived from shares.
The operators of these scams are practiced telesales operators posing as experts in their field to give potential investors confidence, even though the investor may have no real understanding of the goods' prospects. The goods are always made to seem difficult to obtain without 'expert' assistance and, when brokers go for the sale, they claim the goods on offer are so scarce that the investor must make a quick decision or he/she will miss the opportunity. However, once the sale is made, the goods are almost always readily available.
It is common for the goods to be held in store by a third party on behalf of the investor. But in some cases, the goods may not even exist or have very little real value or investment potential. But, in all cases, the goods do not represent a viable investment because, at the price paid, they will either not appreciate at all or it will take many years before they even reach the value at which they were purchased.
The Department for Business Enterprise and Regulatory Reform (BERR) investigates unregulated corporate schemes involving the sale of goods or commodities as investments.
The Office of Fair Trading has the power to take action in other EU member states against a trader based in the EU who is harming the collective interests of consumers. Where a trader is based outside EU, the OFT can seek assistance from overseas counterparts, through the auspices of the International Consumer Protection and Enforcement Network (ICPEN), to take action against dishonest traders in their jurisdiction who target UK consumers.
There are a number of companies offering shares by telephone or via the Internet from abroad (ie, outside the UK regulated area). They are likely to tell potential investors that they have the opportunity to invest in shares in a company, that is either about to be launched on a stock market or is already listed but about to boom. The investor is given an idea of how much profit will be made within a few weeks. In fact, the shares are likely to be in a failing company or one that has never even traded.
Investors who buy shares in this way frequently find they have difficulty selling them because the shares are not listed on a recognised stock exchange. But they may then be approached with an offer to help them sell the shares, provided they pay an "administration fee" upfront. Once the "fee" has been handed over, investors never hear from the firm again leaving them further out of pocket and still holding the worthless shares.
The Financial Services Authority (FSA) regulates the marketing of shares. The FSA have published a list of unauthorised firms selling shares who target UK investors.
The FSA also provide a Firm and Person Check Service to enable investors to find out whether a company or individual is an authorised trader.
Advertisements for investments
Misleading advertising or promotional claims may be in breach of the British Code of Advertising, Sales Promotion and Direct Marketing. Complaints about misleading advertising or claims should be addressed to the Advertising Standards Authority (ASA). For advertising which originates outside of the UK, the ASA can liaise with the European Advertising Standards Alliance (EASA) for investigation. The ASA's Committee of Advertising Practice (CAP) also have procedures to deal with complaints about advertising which originates beyond the jurisdiction of the EASA.
Tips to remember about investments
- ALWAYS take independent professional advice before making any investment and particularly if the type of investment is unfamiliar to you.
- Beware of unsolicited or unexpected approaches offering investment opportunities of any kind. Always check on the credentials of a company or individual before dealing with them.
- Beware of claims that an investment will produce guaranteed, risk-free or exceptional return. Most investments include an element of risk and returns cannot be guaranteed.
- Beware of any investment whose past performance and potential growth cannot be easily checked, for example in the financial press or via an independent financial adviser. Ask yourself, "Why not?"
- Beware of pressure to make a quick decision and NEVER sign up to anything immediately. A reputable dealer will allow time for you to undertake research and, if the investment is genuine, there will usually be a 'cooling off' period in case you change your mind.
- ALWAYS ask about payment of commission. Beware of an up-front commission payable at the time of purchase instead of the time of sale.
- Beware of being told to keep the deal confidential. If the investment is legitimate, why would you need to keep it confidential?
NEVER give your bank account numbers, credit card numbers or other personal information to anyone you don't know or whose credentials you haven't checked. - Ignore emails, chain letters or any other unsolicited approach that promotes get-rich-quick schemes. They're not worth reading and will almost certainly leave you out of pocket!
If you believe you have been approached by a scam operator or have lost money as a result of a scam, contact Consumer Direct.
You can contact the following authorities:
Goods sold as investments
Companies Investigation Branch
Dept for Business Enterprise and Regulatory Reform
Ground Floor
21 Bloomsbury Street
London
WC16 3SS
Tel: 020 75966100
Email: vetting.section@berr.gsi.gov.uk
International Liaison Team
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX
Tel: 08457 22 44 99
Email: enquiries@oft.gsi.gov.uk
Shares
The Financial Services Authority (FSA)
25 The North Colonnade
Canary Wharf
London E14 5HS
Tel: 020 7066 1000
Consumer Helpline: 0845 606 1234 (local call rates)
Misleading advertising
The Advertising Standards Authority (ASA)
2 Torrington Place
London WC1E 7HW
Tel: 020 7580 5555
Email: enquiries@asa.org.uk
