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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
View
Online (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
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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