4 popular investment scams and 10 ways to spot them

Millions of pounds are lost by people falling victim to investment scams each year.

In their latest fraud report covering the first half of 2021, UK Finance confirmed that investment scam losses had gone up by 95% compared to the previous year.

Much of this was driven by social media. Action Fraud confirmed that £63 million of reported losses were as a result of initial contact through a social media platform.

Scamming techniques are becoming more sophisticated and even watchful consumers are falling victim. A recent report in the Times revealed that it took fraud experts at one bank six weeks to convince someone that they were being scammed.

Thankfully, there are warning signs, which you can use to avoid falling victim to scammers.

Read on to learn more about how scammers work, four of the most common investment scams, and to find out 10 ways to spot one.

How scammers work

It’s likely that you’ll have read about someone being scammed and wondered how they were taken in so easily.

In the cold light of day, that’s a natural reaction. However, the methods investment scammers use have become increasingly sophisticated and rely on psychological pressures than can fool even the wariest.

For example, you may take a call from a phone number that is the one you recognise as belonging to your bank.

They’ll say they are calling from the bank’s investment department and calling with a special opportunity that’s only available to selected account holders.

They may even take you through the bank security process that you’re used to. They’ll be friendly and persuasive, mixing in enough investment terminology to convince you it’s a legitimate offer.

In reality, by programming their phone to show a different number they have immediately wrong-footed you and planted the idea in your mind that it’s a legitimate call.

It’s that easy.

4 common investment scams you should look out for

Here are four well-known examples of techniques used by scammers to con you out of your money. Although the details and method will be different, most scams are derivatives of these.

1. The “can’t miss” investment opportunity

A scammer will offer you an investment opportunity that is “too good to miss”. It may promise a high guaranteed return, just as long as you take advantage of the opportunity quickly (scammers like to rush people into decisions).

A follow-up email will take you to a well-designed website page, filled with more tempting information about the opportunity.

In reality, the opportunity is either completely non-existent or it’s a very high-risk investment that will pay the scammer a big fee along with high commission. They’ll deduct both from your investment.

2. The Ponzi scheme

The most famous kind of investment scam is the Ponzi scheme. They have a notorious reputation thanks to such infamous schemes run by Bernie Madoff and Allen Stanford – both of which scammed victims out of billions of dollars in total.

Scammers will use the initial money collected from investors to create an affluent façade – even potentially including expensive buildings and office furnishings.

After that, further receipts go straight to the scheme instigators.

Ultimately, the amount of money owed is more than the money being collected and the scheme collapses, leaving all remaining investors out of pocket.

3. The “pump and dump” scam

This is really an extension of the “can’t miss” opportunity.

The scammer will talk up a legitimate share, or portfolio of shares. The shares will exist, and as you and others are persuaded to invest, the value will go up.

The scammers will maintain contact and encourage you to hold onto your shares, with reassurance that the value will go even higher.

Then they will sell their own substantial holding for a big profit. The value will fall, leaving you with an investment that could be worthless.

4. Clone scams

Clone scams are a sign that scammers are getting increasingly sophisticated in their methods.

Scammers will create websites and literature that looks exactly like that of an official institution – such as a bank or investment company.

They’ll use this to persuade you to buy certain investments. The literature or web pages will highlight that these are “exclusive” offers only available for a limited period. In reality, they are likely to be worthless and non-existent.

10 ways to spot an investment scam

The best way to stop yourself becoming a scam victim is to understand the methods used by investment scammers. Once you’re aware of these, you’re far less likely to fall victim.

1. Someone will contact you unexpectedly with no prior warning. Contact will be by phone or email, although there have even been instances of people being approached in their local high street or having someone knock at their door.
2. They won’t take “maybe” for an answer. You get persistent phone calls from the scammer to induce you to invest.
3. It’s unlikely that you’ll be allowed to call someone back. They will either demand a decision straightaway or offer to call you back after a brief period.
4. Investment details will be vague. They will use a lot of jargon and will focus on the potential headline figures promoting high returns.
5. Scammers will tell you this is a short-term opportunity that others have taken advantage of, so you’ll have to make a quick decision.
6. The caller will try to ingratiate him or herself with you. They’ll ask about your family and financial plans. If you have more than one interaction, they’ll use the information they’ve gleaned to empathise and to reassure you it’s a legitimate opportunity.
7. The investment company is likely to be based “offshore”.
8. If you’re offered a website address to take a look at to confirm the company the caller is from is legitimate, the details of the actual offer won’t be there.
9. The person calling will offer you easily achievable high returns on your investment, but at the same time the implication will be that the investment is low risk.
10. The investment opportunity will sound too good to be true.

Be on your guard to avoid being scammed

The first, and best way to avoid becoming the victim of an investment scam is to have a golden rule that you will not respond to, or be tempted by, any unsolicited approaches.

If you stick to that rule religiously, hang up the phone or refuse to respond to a text or an email, then you’re likely to deter even the most determined and sophisticated scammers.

If you do think you’ve been scammed, Action Fraud have an online reporting mechanism that enables you to get advice and support, 24 hours a day.

Additionally, if you’re ever not certain about an investment, even if you don’t believe it to be a scam, the FCA have a ScamSmart web page where you can check the veracity of what you’ve been offered.

Always be on your guard and, as you’ve already seen, if an offer sounds too good to be true, it probably is.

Get in touch

If you think you’re being targeted by investment scammers, or fear that you may have been the victim of a scam, we’d recommend you utilise the Action Fraud and FCA links above. We’re also happy to talk through any concerns you may have.

You can email us at enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.