An investment scam is when a fraudster tries to trick you into investing money. They often rely on sounding like a completely legitimate investment opportunity to an unsuspecting person, investing in professional-looking websites, marketing, and fake testimonials to appear genuine.

Fraudsters have been known to pose as financial advisers or investment portfolio managers, and some even go as far as using cloned websites to trick you into making false investments.

Investment scams aren't restricted to one industry or investment product; in fact, you could be asked to invest in a number of things, including:

• Stocks
• Bonds
• Currency
• Commodities
• Real estate

People over the age of 55 are targeted at a proportionally higher rate because of their access to lump sums of money from their pensions, and scammers see the potential of conning them out of tens of thousands of pounds. The effort these scam artists go into to make their operation seem legitimate can make them incredibly difficult to spot, especially for those unfamiliar with online technology.

The Financial Ombudsman Service warned last year that this type of fraud is on the rise, with investment scams now the fastest growing 'authorised' scams complaint that the body receives—more than half of those complaints involved cryptocurrency.

How to spot an investment scam

 

However, sophisticated the scam, the warning signs are often the same. Here are some of the indicators someone might be trying to get you to engage in fraud:

• Unexpected cold calls - While cold calls aren't always a sign of a scam, cold calls specifically about investments should be a red flag. Other indicators include trying to keep you on the phone for a long time and calling repeatedly. Also, be aware of cold emails and receiving unexpected promotional brochures through your letterbox or in the post.
• Limited time offers - Putting time pressure on a potential fraud victim is a common tactic fraudsters use, and investment fraud is no different. If someone is offering you an incredible deal that you can only take advantage of if you hand over money right now, you are right to be suspicious. Legitimate opportunities will never require you to commit immediately.
• Low-risk, high reward - Investment frauds tend to try and attract victims by offering enormous returns on investment for supposed no or very low risk. Remember the adage, if it's too good to be true, it probably is.
• Overvalued products - An investment scam doesn't have to be fictional; fraudsters are know to also try and sell legitimate stocks, shares, or products at inflated prices. The fraud in these cases is getting you to pay for something with little or no resale value.
• Exclusivity and secrecy - Offers marketed exclusively for you or with the caveat that you shouldn't tell anyone else about them should always merit caution. This is a tactic that fraudsters use to try and prevent the risk of anyone else sowing seeds of doubt in your mind.

How can I protect myself from investment fraud?

 

• Ask questions - Don't just assume a call or email is genuine. Ask all the questions you need to verify it's a genuine opportunity, and make sure you understand the answers. Another tactic fraudsters use is overloading their target with complex information, so if you don't understand something, keep asking questions until you do.
• Be aware of common tactics - Being aware of some of the tactics we've mentioned in this article, as well as the latest scams, will help you recognise them if they're ever used against you.
• Take your time - Don't rush into making any decisions. Stay calm and remember someone with a legitimate investment opportunity will never pressure or rush you and will always allow you to take your time to consider the offer.
• Always get a formal agreement in writing - And take the time to read everything properly before signing anything!
• Be extra vigilant with overseas companies - The same regulatory protections might not cover foreign companies and could be based there to take advantage of lax regulation.
• Listen to your gut - If you have any doubts, don't ignore them. And as we mentioned, if it's too good to be true, it probably is!
• Remember, everything can be faked - Don't rely on professional-looking websites, celebrity endorsements, or other trust signals to prove something is legitimate. Fraudsters are incredibly sophisticated these days and with the help of new AI tools, are capable of making anything look real and believable.
• When in doubt, seek advice - Even talking things through with a trusted friend or family member can help you gain some perspective. Other professional bodies like action fraud and the Financial Ombudsman Service can also help.

Types of investment scams

 

There are many types of investment fraud to be aware of, and scammers are getting increasingly creative in tricking victims out of their money. Here are some of the common scams to look out for:

Ponzi scheme

Ponzi schemes are perhaps the most infamous type of investment fraud. They promise high returns with little or no risk while collecting money from new investors to pay previous investors. Ponzi schemes eventually fail when the pipeline of new investors slows down or dries up, and there isn't enough money coming in to pay everyone.

Pyramid schemes

Pyramid schemes work similarly to Ponzi schemes, relying on incoming capital to pay out returns. The difference is that pyramid schemes usually have an initial scam artist or artists at the centre, who then recruit investors to recruit other investors - and so on. The scam relies on fees from each level of investors that are paid to those on the top layers of the pyramid.

Gold or precious metal scams

Gold and other precious metals are popular investments, especially during economic uncertainty, as they can offer portfolio diversification and protection from inflation. Gold is usually a long-term investment opportunity, so beware of any 'get rich quick' schemes. Gold scams usually involve paying inflated prices or buying fake products, so stay on top of market news and ensure you deal with reputable sellers.

Forex and cryptocurrency scams

Forex trading has become more accessible in recent years, allowing anyone to try trading currencies for profit. Unfortunately, this has left the door open for bad actors to try and manipulate investors into parting with their money for fail-safe advice, guaranteed returns, and risk-free trades. It's important to mention that legitimate foreign exchange brokers will never promise any of these things - regulations prevent them from doing so because they don't exist.

Similarly, trading cryptocurrencies has also gained popularity since their inception. Anecdotal stories of people who've made thousands of per cent on their investments have only fuelled the fire, but these instances are rare and often inflated. And, as with Forex trading, there is never a return guarantee.

It's also important to remember that the Financial Conduct Authority doesn't regulate cryptocurrencies and therefore aren't protected by the UK's financial compensation scheme.

Where to get help

 

For more information on protecting yourself from investment fraud and how Moneycorp protects its customers, visit our Security Hub.

Many resources are also available to help you protect yourself and report any fraud or potential fraud incidents. You should never feel embarrassed or ashamed for falling victim to a scam and always report it.

Action Fraud - Action Fraud is the UK's national reporting centre for fraud and cybercrime, where you should report fraud if you have been scammed, defrauded or experienced cybercrime in England, Wales and Northern Ireland. Its website also has plenty of resources to help you recognise and protect yourself from fraud.

Financial Conduct Authority - The Financial Conduct Authority regulates financial services firms and financial markets in the UK.

Age UK - Age UK has information and advice to help you spot scams and keep your money safe from scammers.