Common Investment Scams

1428328969_Scam-512How to avoid getting scammed when putting your money into alternative investments

Investment scams are mostly designed to be hard to distinguish from genuine opportunities and come in many different guises. You will often find that those out to con you will mix and match genuine features and different elements of common investment scams in order to create a swindle that is hard to detect at first glance.

We will take a look at some specific scams so that you can get a better understanding of what to look out for in investment fraud by hearing about what has been used successfully in the past to part people from their money on a permanent basis.

Stock market fraud and infamous ponzi schemes are known to many investors but alternative investment scams don’t always make the headlines and can be harder to detect if they are involving a new type of investment scheme where rules and regulations are still being formulated and detection techniques are still being formulated.

Types of scams

Common investment scams often use a specific type of approach or language that has been used in fraudulent schemes previously. Understanding the thinking behind those people who are trying to con you out of your money, will help you to ask all the right questions and spot when something is not quite right with what you are being sold or told.

Affinity

You will regularly find con-artists using the power of affinity to win your confidence. Many of us are more likely to listen to someone whom we think shares a common trait, so they will join groups and pretend to share a common goal or interest.

Internet

The internet has transformed the way we live and work, but it has also created an excellent environment for fraudsters who can often create a fairly convincing cloak of anonymity.

Spurious web sites promoting false alternative investment opportunities can be created and the use of false testimonials and endorsements can add a layer of credibility that can make you think the opportunity is genuine.

Commodities

Con artists have moved into various types of commodity-based scams and these include investments in gold, silver and rare coins and includes alternative energy sources as a more recent example of how fraudsters move with the times.

Seminars

The vast majority of investment seminars you attend will be offering genuine opportunities from reputable sources, but some won’t.

The standard trick used by scammers is to present a seemingly unbeatable investment opportunity, but only available to those that sign up on the day. Investment seminars can create an enthusiastic and positive environment where you feel you are amongst like-minded people.

Always avoid the temptation and pressure to sign up to something on the spur of the moment, that you may well regret very shortly afterwards when it turns out to be a con.

Fraudulent land schemes

Land investment fraud is estimated to exceed £1 billion annually and as a way of conning people out of money, it is hardly a new phenomenon.

Throughout history you can find examples of worthless investments in land and every year there are new cons being perpetuated. For example, the UK Insolvency Service managed to close down 82 land investment companies between 2006-2012, that amounted to £60 million of investors money.

A lot of modern land fraud tends to happen over the telephone. Individuals are targeted by cold-callers who present an often plausible get-rich-quick scheme based on the growing demand for housing and the need to develop land.

The schemes will either involve contracts and property that are simply non-existent or it could involve being sold a genuine parcel of land, but one that is either inaccessible or where development is forbidden and therefore not worth anything like it would be if planning was permissible.

Many genuine land investment schemes will require a reasonably substantial payment of at least £10,000 and be backed by professional land investment managers who will almost never use telemarketing to find suitable investors.

Always take independent advice and take the time to check out the validity of a scheme or investment opportunity involving land, before you commit any money.

Gold scams

As the saying goes, “all that glitters is not gold”, and there are numerous gold scams that will quickly take the shine off your bank balance.

Gold coins are often used to con people. A classic fraud is to dupe unsuspecting coin buyers by simply misrepresenting the true grade of a gold coin.

Coins are graded according to their condition and MS-70 is the description used to describe a coin that is in mint condition and has never even been handled. A Gold Eagle coin that has been graded as MS-63 is very clean but not perfect and would worth about $900 less than a Gold Eagle graded as MS-70.

Fraudsters attempt to pass off a coin as being a higher grade than it is and therefore make a quick profit out of an unsuspecting investor who has just overpaid because they were unable to tell the difference.

It could be worse. You might be sold a gold coin that is actually gold-copper alloy and presented in a protective casing that prevents you from inspecting the coin more closely.

You might even be offered an investment in coins that simply don’t exist at all. Some cons involve offering to “store” these coins on your behalf and even make an extra profit by charging storage fees for gold they don’t even have.

Stamps

The stamp industry estimates that people have invested over £400 million in the last couple of years, in bogus firms who offer worthless investments in items such as stamps.

A common theme is for these fraudulent investment companies to make exaggerated claims about the likely return on investment with no realistic chance of achieving these promises, due to the fact that the stamps will have been sold to you at inflated prices in the first place.

Bulletin boards

It is worth mentioning at this point, the use of internet bulletin boards in order for investors to either warn other people about scams or actually perpetuate one.

There are many valid and potentially useful posts on these boards but you should also be aware that bulletin boards are used as a vehicle for pump and dump frauds.

What this means is that you can find a fraudster trying to affect the price of a stock or commodity by either talking up the imminent prospect of a rise in value, or spreading negative rumors in order to help a short position they might hold.

Always be vigilant when acting on information you find on bulletin boards as it can be very difficult sorting out the useful ones from the fakes.

Fine wine

Investing in fine wine can be profitable but you also have to be vigilant as there are scams involved in this alternative investment that are very convincing and could prove costly.

Buying wine before it is bottled and released onto the market is known as en primeur.This creates a scenario that can be exploited by fraudsters, as en primeur wine is often delivered 2-3 after the vintage, giving ample time for the fraudster to be long gone before their con is discovered.

Do your research and try to verify the contact details you have for the company are correct and all of the other credentials check out. It should be noted that cold calling is undertaken by honest as well as fraudulent businesses in order to reach new customers, which makes it a bit harder to spot a fine wine fraud in the first instance.

Renewable energy

When there is an industry that is surrounded by a fair amount of hype, this is viewed as an opportunity not to miss for fraudsters who are looking for new victims.

The renewable energy industry is expanding quickly and offers the chance to make good profits, but some renewable energy investment opportunities are definitely too good to be true.

The U.S Securities and Exchange Commission exposed what became a notorious case within the biomass sector. A company called Mantria Corp claimed to be the leading distributor and manufacturer of biochar and said that it was producing at a rate of 25 tons per day.

They never actually sold any biochar at all and the carbon negative housing scheme they sold turned out to be a $30 million Ponzi scheme.

As with all these schemes and whatever the investment vehicle happens to be, you should always view an investment opportunity on the basis that if it seems too good to be true, there is a good chance it is a scam.

When it comes to developing technology in sectors like renewable energy, it is worth pointing out that some new companies don’t set out to con you, but simply make assumptions that turn out to be inaccurate.

Investment fraud can often be very sophisticated and subsequently very difficult to spot. At the very least, you should reject most cold calls or treat them with initial suspicion until you can properly verify their authenticity.
You should also seek impartial advice to check out the claims being made can be substantiated. Another good thing to do in order to avoid being conned out of your money, is to check warning lists about scams from official sources like the FCA.