4 Common Investment Scams + Best Practices To Get Your Money Back
Over £1.2 billion was stolen through fraud in 2022 according to UK Finance. Authorised Push Payment (APP) fraud is a common technique for fraudsters to use to illicitly gain access to funds.
APP fraud happens when someone is tricked into sending money to a fraudster posing to be a genuine payee, according to Payment Systems Regulator.
In 2022 APP fraud reached £485.2 million, out of this investment fraud is one of the largest components of APP fraud; landing in at 24%.
This makes for stark reading for investors, who would benefit from being vigilant to avoid falling for the same scams themselves.
Common Types of Investment Scams
Advanced Fee Fraud
If you’ve ever heard about the Nigerian Prince scam, you will be familiar with advanced fee fraud, but just in case advanced fee scams promise victims a false amount of money.
But only after the victim has provided the ‘Nigerian Prince’ – who is actually a scam artist – with an initial sum of money to help them out of a tricky situation.
When the funds have been transferred, the scammer simply disappears with the victim’s hard-earned cash.
This type of scam is easy for fraudsters to tailor to target different types of victims.
For example, romance scams also use advanced fee fraud when they convince lonely singles in wealthy countries to transfer money to pay for a plane ticket for a fictional character, orchestrated unbeknownst to them by a scam artist.
This can be an easy scam to spot, by looking for giveaways such as people asking for upfront fees, unregistered brokers with no official paperwork and unsolicited offers that offer above-market rates of return.
However, this didn’t stop 60,000 people falling victim to this scam in 2020.
Rather startlingly, between 2020 and 2022, advanced fee fraud victims have swelled to 454,000 according to a study by Infosecurity Magazine.
Affinity Fraud
Affinity fraud is where fraudsters target specific, identifiable groups of people such as senior citizens, ethnic communities or religious associations.
Fraudsters gain the trust of groups like these and convince members to partake in fraudulent financial transactions.
A real-life example of this would be when “About 400 Mennonite and Amish families lost a combined $59 million after promises of high returns” according to Aura.
Fraudsters were able to do this by claiming they were investing in local businesses on behalf of the families.
This of course did not happen and the fraudsters made off with a significant amount of money.
This type of fraud can be detected by looking out for high-pressure sales techniques, promises of unrealistic returns and a lack of transparency about the business opportunity.
Detection can be further aided by educating community members about the risks of such scams, along with establishing reporting mechanisms to allow members who suspect others of being involved in scams to alert the leadership of that group.
Also, encouraging open communication and transparency amongst your members can allow you to catch wind of a scam sooner. According to Finance Strategists.
High Yield Investment Programs
High-yield investment opportunities are unregulated investment opportunities that promise to deliver high returns with little or no risk.
However, these are nothing more than Ponzi schemes that steal any invested money.
In June 2022, several employees of EarthWater Limited pleaded guilty to charges in a high-yield investment fraud scheme that targeted elderly victims, according to Aura.
In order to protect yourself from this scam, make sure to watch out for investments that offer excessive risk-free returns, convoluted or secret investment requirements and advertisements offering limited, rare or exclusive investment opportunities.
Pump and Dump Schemes
Pump-and-dump schemes are where scammers manipulate regulated stock prices by flooding investors with misleading or incorrect information.
For example, a scammer reports incorrect information that would cause a company’s stock price to dump their holdings.
Sometimes significantly reducing the price of stock, then the scammers can purchase stock at rock bottom prices and wait for the next time the stock rises in price to sell at a profit.
In order to determine if a piece of information is going to cause a long-term dip in a company’s stock price it is important to remember the following:
- Source Of Information: Is the information coming from reputable sources, or is it just coming from dodgy websites and news sources that you have never heard of? A good practice is determining if the news source is coming from multiple news sources, not just one or two. Even then evaluate the trustworthiness of each, as false information can still be picked up by other news sources mistakenly.
- Is this too good to be true: The company may have not performed well for a long time or is a brand new company, but all of a sudden its stock shoots up 300%. If you can’t find a legitimate reason why their stock has shot up, such as information coming directly from the company website/social media such as financial reports or product announcements, it is advisable to be sceptical.
Investment fraud can cause significant disruption to people’s lives, robbing them of their savings and leaving them less financially secure.
But it is important to remember that all is not lost if you do get scammed on a regulated investment platform.
You can get the help of professional investment fraud attorneys who will typically help the investor gain back their stolen funds through a legal process called a FINRA arbitration.
Category: Consumer Complaints
