CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 61% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Background

Fraud has developed considerably in the last decade, proliferating into many areas of everyday life.

Unfortunately, fraudsters have customised their scams to broaden their reach and penetration. There is daring and sophistication behind many modern scams.

Keeping track of various scams has required the sharing of significant expertise across many different skills and professions including policing, security services, banking, insurance and IT systems, to name a few. It has transformed many working practices.

Regardless of these efforts the growth in industrial scale fraud and fraud prevention looks likely to continue. Due to the fact of fraudsters often being based overseas, there is little recourse to stop their exploitative schemes and bring them to justice.

Being the victim of a scam can have a major impact on a victim’s life. It is an unforeseen expense, that can result in them losing their retirement savings, or pension entitlements or even their homes. It is usually a stressful, disruptive and protracted experience that brings together emotions of anger, fear and embarrassment.

Whilst it is certainly true that some people are more vulnerable than others, and elderly people are often targeted, any person of any age or background can be in the sights of fraudsters.

Recovering funds lost to scammers is very difficult. Once the money has gone, it is unlikely to be recovered. The fraud becomes a loss, usually for either the insurer, the bank or the fraud victim. The problem then becomes one of who precisely shoulders the loss.

 

What can we do?

When finding a means of tackling fraud, the approach taken has taken the form of preventative measures as a first step:-

  1. raising awareness of scams via advertising and education both online
  2. putting in place checks, safeguards and warnings in the system
  3. requiring measures that will slow down a transaction because it involves third parties such as identification and credit checking companies

‘Prevention is better than cure.’

 

An opportunity to find out more about fraud takes place during Fraud Awareness Week (14th– 20th November 2021). This is provided by the Association of Certified Fraud Examiners.

https://www.fraudweek.com/

 

The “Fraud Triangle” a hypothesis from Donald Cressey states three factors need to be present for fraud to take place; “Pressure, Perceived Opportunity, Rationalisation”

Whilst aimed at company employees primarily the Fraud Awareness Week is a useful forum for progressing an understanding of fraud.

Fraud is a vast, amorphous topic, but here is a run-down of common scams:-

Rules of Thumb

  1. If it sounds too good to be true……. [it is not true] – the corollary also holds, if its sounds too bad to be true……[it is not true]
  2. If it does not smell right, or does not make sense – then it is probably suspicious, at the very least far closer examination is required, the approach should be to not proceed.
  3. No harm in getting a second opinion / asking a family member / asking the police.
  4. Think carefully about a) why has this person contacted you b) how has the person obtained information about you c) what is the context for the communication.
  5. Understanding the limits of IT – just because an email appears in your inbox and not in the ‘junk’ box does not mean it has passed IT’s checks and balances i.e. the spam filters. It may have gotten through the spam filters by being designed to do so. The security settings are not full proof.
  6. Do your own research.

Turning the focus onto investment scams

Let us start with an easy example.

  1. HIGH INTEREST BANK ACCOUNT As we all know, interest rates are negligible – so you see an advert for a bank account paying 5% interest on deposits. In terms of rules of thumb this fails on points i) and ii). RESPONSE: IGNORE
  2. “PHISHING” and “SMISHING” – Quite common – Fraudsters posing as public servants, banks, the Inland Revenue send you emails “phishing” or texts “smishing” asking you to click a link to verify an account or password details – when you type in your information the fraudster has your details and access to your bank account or credit card etc. RESPONSE: Phone your bank and ask if they are contacting you / NB a Bank will not disclose your information to you and is likely to direct you to the online security.
  3. WIDOW’S ESCROW ACCOUNT; You are advised by email from an unknown sender that you are needed to help a widow access her late husband’s $100m dollar estate tied up in an escrow account. All you need to do is sign some papers and forward fees to her legal representative. You will of course be handsomely rewarded for your assistance by receiving a cut of her inheritance. You should consider this as an investment in this lucrative funds recovery venture. Frauds often employ a ‘damsel in distress’ plot whose theme requires men or women to act as rescuers coming to the aid of the aggrieved. RESPONSE: IGNORE
  4. PROPERTY SCAMS; You are advised to invest in development land ahead of likely planning permission, or valuable mining assets in a remote part of the world, or buying a share of a film that is near to release but needs to cover post- production work. RESPONSE: IGNORE
  5. BOILER ROOM; “buy one share, get one bonus share free” scams can employ elaborately detailed ‘stories’ where the receiver/ victim, starting from a position of disbelief slowly has his curiosity piqued by a fraudulent narrator, and by that process, builds up understanding and conviction in the ‘story’ of a ‘pot of gold’ plot or a ‘buy one, get one free’ thesis. RESPONSE: report to the FCA
  6. Pension Liberation’ Schemes; this scheme plays on pensioners wanting to monetize their pension without paying the requisite taxes or surrender penalties. The typical approach revolves around the offer of ‘free pension advice’ or investment opportunities to re-direct the pension. The scam usually involves paying for tax avoidance advice or transferring the cash element of the pension. RESPONSE: report to the Pensions Regulator. A more detailed look at the type of pension fraud can be found on this link Avoid pension scams | The Pensions Regulator
  7. “Homebuying” Fraud – the interception of cash used for a deposit for house purchase. The fraudster pretends to be a solicitor and re-directs the cash funding just prior to the exchange of contracts. RESPONSE: contact your solicitor immediately.

 

The Financial Conduct Authority has provided detailed advice on its website for the avoidance of investment related scams – this is fully detailed on the links and the information provided by the FCA, part of which we have duplicated for you below:-

ScamSmart – Avoid investment and pension scams | FCA

How to avoid investment scams | FCA

Reject unexpected offers

If you’re contacted out of the blue about an investment opportunity, chances are it’s a high-risk investment or a scam.

​​​​Scammers usually cold-call but contact can also come by email, post, word of mouth or at a seminar or exhibition. Scams are often advertised online too.

If you get cold-called, the safest thing to do is to hang up. If you get unexpected offers by email or text, it’s best to simply ignore them.

You can register with the Telephone Preference Service and Mailing Preference Service to reduce the number of letters and cold calls you receive.

Callers may pretend they aren’t cold calling you by referring to a brochure or an email they sent you – that’s why it’s important you know how to spot the other warning signs.

Spot the warning signs

Check if a firm is FCA-authorised

Almost all financial services firms must be authorised by us – if they’re not, it’s probably a scam.

Check our Financial Services Register to see if a firm or individual is authorised or registered with us.

Always access the Register from our website, rather than through links in emails or on the website of a firm offering you an investment.

Check if the firm’s ‘firm reference number’ (FRN) and contact details are the same as on our Register.

If there are no contact details on the Register or if the firm claims they’re out of date, call our Consumer Helpline on 0800 111 6768.

If you’re dealing with an overseas firm, you should check with the regulator in that country and also check the scam warnings from foreign regulators.

If you use an unauthorised firm, you won’t have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong – and you’re unlikely to get your money back.

If you use an authorised firm, access to the Financial Ombudsman Service and FSCS protection will depend on the investment you are making and the service the firm is providing.

Not all investments are regulated by us (eg wine) – find out more about unregulated investment products.

Check it’s not a ‘clone firm’

A common scam is to pretend to be a genuine firm (called a ‘clone firm’).

Always use the contact details on our Register, not the details the firm gives you.

You should also check the firm’s details with directory enquiries or Companies House to make sure they’re the same.

Check the FCA Warning List

Use the FCA Warning List to check the risks of a potential investment – you can also search to see if the firm is known to be operating without our authorisation.

Even if a firm isn’t on our list, it may still be a scam – firms change names and details all the time.

Get impartial advice

You should seriously consider seeking financial advice or guidance before investing. You should make sure that any firm you deal with is regulated by us and never take investment advice from the company that contacted you, as this may be part of the scam.

MoneyHelper has information on investing and about how to find a financial adviser. Alternatively, you could get further information from a group that represents advisers such as PIMFA.

Read more about how to find an adviser.

If you’re suspicious, report it

You can report the firm or scam to us by contacting our Consumer Helpline on 0800 111 6768 or using our reporting form.

If you’ve given your bank account details to a firm you think may be operating a scam, tell your bank immediately.

If you’ve agreed to transfer your pension and now suspect a scam, contact your pension provider straight away. They may be able to stop a transfer that hasn’t taken place yet.

Be wary of future scams

If you’ve already invested in a scam, fraudsters are likely to target you again or sell your details to other criminals.

The follow-up scam may be completely separate or related to the previous fraud, such as an offer to get your money back or to buy back the investment after you pay a fee.

If you have any concerns at all about a potential scam, contact us immediately.

 

If you have any questions regarding this article or if you feel you have been approached in a similar manner to our outline above then please feel free to reach out to me on the contact details below.

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