Online Investment Scams Keep Reinventing Themselves

 The internet has been polarized by numerous investment scams which have caused people to lose money. Although these are often targeted at beginners, experienced investors can fall victim to these scams.

These scams could take any format and have been constantly evolving like chameleons. According to the FCA, clone investment scams increased by 29% during the Covid 19 lockdown in 2020.

Some of these online investment scams look real and it’s hard for investors to spot. A survey by the FCA reported that 15% of the investors find it hard to spot a scam and 77% don’t know what a cloned investment it.

No doubt, social media has been a prominent platform used by scammers to defraud people.  Most of these victims are those who are looking for a get-rich-quick scheme. But there are some widely used scam techniques.

Bond Scams

Since bonds are long term investments, you can be defrauded and will not realize it until years later.

For example, if you buy a fake bond, you could be receiving coupon payment annually, but at maturity your principal will not be refunded to you. These scams often appear as genuine investment opportunities until the victim has been scammed.

The London Capital and Finance scandal is a perfect example of a bond scam. People were hoodwinked into buying glorified IOUs masquerading as bonds, and about 11,600 people were victims of the fraud.

Some of these scams are also advertised in magazines, newspapers and social media to attract more people and showcase acceptability.

Most bond scammers may actually have FCA licenses and this gives them a high level of credibility in the investors’ eyes. Unfortunately, they betray the fiduciary relationship and act fraudulently.

Bond scammers are always elaborate with well-designed websites and large offices so they have this halo effect. The FCA has clamped down with the use it or lose it policy where if a license holder doesn’t file returns in a while, they lose the license.

 

The Romance Scam

Romance scam is one of the latest methods which scammers use to defraud their victims. The initial contacts are often made through online dating websites and social media platforms

In several cases, the victims will be made to believe that they are in romantic relationship. The fraudsters generally disguise as professional traders or business executives with overwhelming social media profiles to support their persona.

Riding on trust which has been built through romance, the victim will thereafter be encouraged to open a trading account through a link sent by the fraudsters. In most cases the brokers are unregistered.

When the victim makes a deposit, it then goes to the fraudster. Fraudsters sometimes use a registered broker but when it is time for the victim to make deposit, they will then provide a link which will take the money to the fraudster.

UK Finance estimated that between January and November 2021, UK residents lost £18.5 million to romance scams.

 

Pump and Dump Scam

Pump and Dump scam is a manipulative way to profit from the capital market. It is done by artificially inflating the price of an asset through false or misleading statements. The motive is to create a buying frenzy around an asset which will increase the price ‘Pump’.

Then the criminals behind it will sell ‘Dump’ the asset on the new buyers. After the dump, the price of the asset will drastically fall and investors will lose money.

Social media, email, direct mail and investment newsletter are some of the vehicles which pump and dump criminals used to perpetrate their acts. Their targets are often small companies or little-valued assets because of their low trading volume.

An example of a pump and dump scam are illiquid cryptos, meme stocks where ‘insider’ users came together and bought large volumes of shares, thus forcing the price to increase. They would later sell their holdings causing the price to crash back to its former position.

 

Modified Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. It started in the 1920s and was named after Charles Ponzi who promised a 50% return on investment.

It is one of the most repeated financial crimes. The guarantee of a high return on investment is what often attracts innocent investors.

Ponzi scammers do not invest the money paid by the investors. Rather they recycle the money among the investors. With the early investors often being at advantage.

Today Ponzi schemes have been modified as the scammer gets a license for a legitimate business-like fund management and then starts a Ponzi scheme alongside the legitimate fund management business.

 

Fund Recovery Scam

Fund recovery scam is targeted at victims of fraud. Proponents of this criminal act will promise to help to recover the fund which you have lost to fraud. However, they intend to add salt to your injury.

Generally, they use social media or local newspapers to pose as fraud recovery investigators. They also use fake testimonies, reviews and ratings to establish legitimacy.

Victims are therefore asked to pay an upfront fee which is often a percentage of the money lost. They might also sell information provided by the victim on the dark web or use it to fraud him back at a later date.

Although there are genuine and legitimate assets or fund recovery companies, there are also many that only want to benefit from your pain.

 

Forex Brokerage Scam

A forex scam is when an unauthorized or unlicensed forex trading platform or brokerage offers forex Services. Such brokerages can fold up at any time and they can put your capital in jeopardy.

These are most times forex brokerage which operates from offshore countries that are not subjected to any stiff market regulation.

It’s noteworthy that there are many forex brokers operating in the UK, but not all of them are regulated. This comparison of FCA regulated forex brokers shows that there are many licensed brokers in the UK that offer forex & CFD trading, but there are also 100s of unregulated brokers which accept clients illegally.

Trading with any unregistered forex broker comes with significant risk. When an FCA licensed brokerage goes out of business, investors get cash compensation from the FSCS. This is, however, not the same for an unlicensed brokerage.

You must only choose a FCA licensed broker that suits you. After choosing a forex broker, you should then verify their authenticity by visiting the FCA website and navigating to the Financial Services Register page.

 

Forex Signal Scam

Forex signal providers help forex traders to identify the available trading opportunities. Forex signal providers are expected to be registered with FCA. However, people still go around selling signals without approval.

For example the FCA put up a warning advising the public against a firm called ‘Direct Forex signals’ as they were unregistered. The FCA further warned that using an unregistered signal provider is at your own risk and you will not be compensated from the Financial Services Compensation Scheme (FSCS), if you are defrauded.

Due to the strong demand for market signals, forex signals scammers will create a series of falsified signals which they sell to traders in exchange for money. New traders are most times the victim of forex signal scams.

 

Investment Seminar Scam

This is an organized event to project investment as an easy adventure to make people part away with their money. In most cases, they advertise trading lessons and products such as books or videos in exchange for money.

They often use the words “guarantee” and “double your income” to mislead innocent people. Do note that capital market investment is not failure-proof. You should not be misled by the word “guaranteed”.

 

Ransom Scam

This is executed by hackers who hack into your account and shut you out from accessing it. Social media accounts and personal files are always their targets.

They will later demand that you should upload a video endorsing their product or service, before they relinquish control of your account.

They use the uploaded video to cajole people including your social media friends, that their products or services are genuine when in the real sense, they aren’t.

 

Watering Hole Scam

This scam is often targeted at people through a company or bank’s social media pages. They post malicious links in the comment sections. For example if you complain about not getting notifications on your banking app, the scammer will quickly send you a link to click on to that effect.

People who seek solutions to their complaints constantly fall victim to this scam. Watering hole criminals will thereafter have access to valuable information of the victims which they sometimes sell on the dark web or use to defraud them.

 

Be Aware

Online investment scams can take any shape. It is now prevalent with the extensive use of social media. Thousands of UK citizens lose millions of pounds annually to online investment scams.

The best way to protect yourself from falling victim to these scams is that you should always verify investment opportunity with FCA before you decide to invest your funds.