Most investment scams have similar characteristics: they promise astronomical returns, provide vague or no details about the underlying investment structure, and feature pressure tactics.
Many of these scams are well researched and structured, leading the public to believe that these are regulated firms that provide a legitimate service. And unfortunately, the level of sophistication with many scams is increasing, writes Alex Ingrim, senior investment analyst at Chase Buchanan Wealth Management.
As international financial advisers, Chase Buchanan sometimes encounters investment scams aimed towards vulnerable expatriate clients. In order to help educate the public and our clients, we created ‘The Little Booklet of Investment Scams’ in partnership with the Metropolitan Police in London.
We have outlined various scams below and ways for clients to identify fraud and protect themselves when dealing with a fraudulent firm.
Coronavirus scams
Since the global coronavirus pandemic, fraudsters have been playing on the public’s fear to develop scams containing misinformation about the coronavirus. Clients may receive phone calls or text messages claiming to be from the government or the World Health Organization.
Within these calls, a recorded message or caller will claim to be contacting clients about the coronavirus with a prompt to speak to another operator or press a button on their phone.
Phone operators may ask questions designed to get the client’s personal information or financial details.
Alternatively, pressing a button may connect a client to a high-cost phone line, leaving them liable to a high phone bill. Text messages claiming to be from a GP or the government may contain links or attachments which should not be opened.
Some of these text messages offer coronavirus related payments or ask for financial details to receive a payment. If the message has truly come from a GP, the client can always call the practice to verify the message.
This scam is often repeated with different subject matter. We always encourage clients to not respond to unrecognized numbers or to consult with a trusted adviser if they are unsure about sending across financial details.
Foreign exchange trading scams
The foreign exchange (FX) market is a decentralised, unregulated market for trading currencies. Due to the decentralized nature, it is an attractive area for fraudsters to promote investment and trading schemes.
Fraudsters entice clients with social media posts with fake celebrity endorsements and images of luxury items, often promising high, guaranteed investment returns. They will create fictitious trading accounts that often show a small profit and generate an initial return.
This entices clients to then invest further in the scheme. However, the trading account is not real. It is a manipulated demo account where no trades actually take place, and after some time, the account will be closed and the money withdrawn with no further contact.
We advise clients to be suspicious of any advertisements or approaches through social media.
Professional looking websites, social media posts, and advertisements don’t reveal whether a company is a genuine company or signal a good investment opportunity. Fraudsters will often try to falsely associate themselves with celebrities in order to appear legitimate.
We suggest clients do significant up-front research on any investment opportunity and encourage them to get independent advice. And if returns appear too good to be true, they probably are!
Overseas property and agriculture scams
In these scams, a fraudster will offer clients an opportunity to buy an off-plan property, plot of land, or share ownership in an agricultural plantation.
The investment opportunity is sold as low risk but with high, guaranteed returns of 15%-25% per year. The investment period is relatively short, at around five years, after which the land will be sold or crops harvested.
Fraudsters can approach clients with these investment opportunities in a variety of ways – through cold calls, email, social media, or at seminars and exhibitions.
They usually present professional looking material including brochures, websites, and videos to convince clients of their projects and proposals.
Once the investment is made, the fraudster will either stop contact immediately or press the client for further money. But the land, property, or plantation does not exist, and the client is left empty handed.
Clients should be extremely wary of someone calling them to offer them an opportunity to invest in property, land, or agriculture. In many countries, anyone offering to sell property must be licensed and regulated, and even if this is not required, they may be associated with ‘best practice’ trade organisations.
Genuine land and property companies often work with regulated brokers and financial advisers rather than cold calling potential investors. Clients should be encouraged to speak with an independent financial adviser about any investment opportunities presented to them by an unknown third party.
This article was written for International Adviser by Alex Ingrim, senior investment analyst at Chase Buchanan Wealth Management.
