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Investment
Scams 
What
are Investment Scams?
The word "investment" is
used in connection with a wide range of schemes offering income,
interest or profit in return for a financial outlay. It is often
used loosely, and sometime misleadingly in order to disguise the
true nature of a scheme, eg pyramid schemes, chain letters or other
types of scheme where a return depends on persuading others to join.
For the purpose of this section,
"investment" is used in connection with the purchase of
something, eg high value or rare goods, stocks and shares, property,
in the expectation that what is purchased will increase in value and
even provide an exceptional return compared to other forms of
investment.
It is not always understood by
potential investors that there is a wide range of so called
investments which are unregulated, which means that they are not
traded by authorised investment brokers , who might be expected to
operate to professional standards. Nor are they traded on a
regulated exchange, which means that their current value and
prospects for appreciation are difficult or impossible to assess
through any of the normal channels. There is no guarantee that the
market will still be functioning when you come to realise your
investment and almost no chance of any compensation if the
investments have been missold. This all creates opportunities for
the unscrupulous to mislead and trap the unwary.
Investment scams will always try to
appear more attractive than more conventional, regulated investments
and so the return on the outlay is always likely to be exaggerated
or unrealistic. It follows that the essential message which applies
to other scams applies equally to investments - If it looks too good
to be true, it probably is!
Goods Sold as
Investments
 High value goods such as Claret,
Champagne, brandy or whisky, paintings or jewellery, are usually
promoted on the premise that they will perform better than other
investments, such as shares traded on the Stock Market.
One common characteristic is that
the potential investor does not or cannot approach the company
offering the "investment". The introduction is almost
always by cold calling by telephone or email although the approach
frequently comes in the form of a seemingly innocent offer of
information. It is common for the scam operators to use shareholder
lists to get the names of investors and to then offer them a free
report if the potential investor confirms his or her address and
provides a telephone number.
The potential investor then either
receives a brochure or a phone call followed by a brochure. The
brochure contains limited and often misleading information about the
investment prospects of the goods on offer and may be accompanied by
press cuttings, which appear to indicate that the major newspapers
have reported that you can't lose by investing. There may be a graph
showing how investment in the goods out performs traditional stocks
and shares. This is misleading because it deals only with capital
gain on the stock market and takes no account of the dividend income
derived from shares. Currently, due to the poor performance of the
Stock Market, the goods are promoted as a safe and easy way to make
tax-free capital gains of 15-20% per annum.
The operators of these scams are
practised telesales operators posing as experts in their field to
give potential investors confidence even though the latter may have
no real understanding of the goods' prospects. The goods are always
made to seem difficult to obtain without 'expert' assistance and,
when brokers go for the sale, they claim the goods on offer are so
scarce that the investor must make a quick decision or he/she will
miss the opportunity. However, once the sale is made, the goods are
almost always readily available
It is common for the goods to be
held in store by a third party on behalf of the investor. But in
some cases the goods may not even exist or have very little real
value or investment potential. But, in all cases, the goods do not
represent a viable investment because, at the price paid, they will
either not appreciate at all or it will take many years before they
even reach the value at which they were purchased.
The Department of Trade and
Industry (DTI) investigates unregulated corporate schemes involving
the sale of goods or commodities as investments. See DTI contact
below.
The Office of Fair Trading has the
power to take action in other EU member states against a trader
based in the EU who is harming the collective interests of
consumers. Where a trader is based outside EU, the OFT can seek
assistance from overseas counterparts, through the auspices of the
International Consumer Protection and Enforcement Network (ICPEN),
to take action against rogue traders in their jurisdiction who
target UK consumers. See OFT contact below.
Shares
 There are a number of companies
offering shares by telephone or via the internet from abroad (ie
outside the UK regulated area). They are likely tell potential
investors that they have the opportunity to invest in shares in a
company that is either about to be launched on a stock market or is
already listed but about to boom. The investor is given an idea of
how much profit will be made within a few weeks. In fact, the shares
are likely to be in a failing company or one that has never even
traded.
Investors who buy shares from in
this way frequently find they have difficulty selling them because
the shares are not listed on a recognised stock exchange. But they
may then be approached with an offer to help them sell the shares,
provided they pay an "administration fee" upfront. Once
the "fee" has been handed over, investors never hear from
the firm again leaving them further out of pocket and still holding
the worthless shares.
The Financial Services Authority (FSA)
regulates the marketing of shares. Further information on scams and
the work of FSA is available from their Consumer
Help website at www.fsa.gov.uk/consumer/consumer_help. The FSA
have also published a list of unauthorised firms selling shares who
target UK investors. See their press release for details. They also
provide a Firm and Person Check Service to enable investors to find
out whether a company or individual is an authorised trader. See FSA
contact details below.
Advertisements
for Investments
Misleading advertising or
promotional claims may be in breach of the British Code of
Advertising, Sales Promotion and Direct Marketing (The CAP Code).
Complaints about misleading advertising or claims should be
addressed to the Advertising
Standards Authority (ASA). For advertising which originates
outside of the UK, the ASA can liaise with the European Advertising
Standards Alliance (EASA) for investigation. The ASA's Committee of
Advertising Practice (CAP) also have procedures to deal with
complaints about advertising which originates beyond the
jurisdiction of the EASA. See ASA contact details
below.
Cases Studies
  (9
pages) Cases
studies where consumers have been victims of investment scams.
Remember
ALWAYS take independent
professional advice before making any investment and particularly if
the type of investment is unfamiliar to you.
and Remember the
Warning Signs
• Beware of unsolicited or
unexpected approaches offering investment opportunities of any kind.
Always check on the credentials of a company or individual before
dealing with them.
• Beware of claims that an
investment will produce guaranteed, risk-free or exceptional return.
Most investments include an element of risk and returns cannot be
guaranteed.
• Beware of any investment whose
past performance and potential growth cannot be easily checked, for
example in the financial press or via an independent financial
adviser. Ask yourself, "Why not?"
• Beware of pressure to make a
quick decision and NEVER sign up to anything immediately. A
reputable dealer will allow time for you to undertake research and,
if the investment is genuine, there will usually be a 'cooling off'
period in case you change your mind.
• ALWAYS ask about payment of
commission. Beware of an up-front commission payable at the time of
purchase instead of the time of sale.
• Beware of being told to keep
the deal confidential. If the investment is legitimate, why would
you need to keep it confidential?
• NEVER give your bank account
numbers, credit card numbers or other personal information to anyone
you don't know or whose credentials you haven't checked.
• Ignore emails, chain letters or
any other unsolicited approach promoting get-rich-quick schemes.
They're not worth reading and will almost certainly leave you out of
pocket!
Reporting Investment
Scams
If you believe you
have been approached by a scam operator or have lost money as a
result of a scam, you can contact the following authorities:
Goods Sold as Investments
Vetting Section
Department of Trade and Industry
Room 703
10 Victoria Street
London
SW1H 0NN
Tel No: 020 7215 3120
Email: vetting.section@dti.gsi.gov.uk
International Liaison Team
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX
08457 22 44 99
enquiries@oft.gsi.gov.uk
Alternatively, you can contact your
local Trading Standards Office (Their telephone number can be found
in the phone book - under "Local Authority" or you can
access the Trading
Standards Central website www.tradingstandards.gov.uk , which
includes a facility enabling consumers to identify the Trading
Standards Department relevant to their postcode.)
Shares
The Financial Services Authority (FSA)
25 The North Colonnade
Canary Wharf
London E14 5HS
Tel: 020 7066 1000
Consumer Helpline: 0845 606 1234 (local call rates)
Consumer Help: http://www.fsa.gov.uk/consumer/scams/index.html
Misleading Advertising
The Advertising Standards Authority
(ASA)
2 Torrington Place
London WC1E 7HW
Telephone: 020 7580 5555
Fax: 020 7631 3051
Website: www.asa.org.uk
Email: enquiries@asa.org.uk
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