Investment scams: Practical tips to spot and avoid them

Investment scams are unfortunately one of the many ways criminals and scammers try and steal money. They will use tactics to try and convince you to invest in fake schemes, shares, or commodities that either don’t exist or are worthles.

These types of scams are becoming increasingly common with our information being so readily available to scammers and hackers online. The scams can take a variety of forms, so it’s crucial to know how to spot them and actions to take.

Types of investment scams

Cryptocurrency

Cryptocurrency is a digital asset that can be traded or exchanged online to buy from people or companies who accept this form of payment. It’s still in its infancy, leaving lots of loopholes and uncertainty meaning scams are a lot more likely.

Despite the fact that cryptocurrency is attracting more attention as a potentially lucrative investment option due to the peaks and troughs in value seen over the past few years, Cryptocurrency isn’t protected by the UK’s Financial Services Compensation Scheme (FSCS) and many also aren’t regulated by the Financial Conduct Authority (FCA).

These types of investments are often made via currency exchange platforms – websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars or Euros. For those that want to trade professionally and have access to trading tools, you will likely need to use an exchange that requires you to verify your ID and open an account or a digital ‘wallet’.

Cryptocurrency Investment scams

Scammers are capitalising on the growing attention cryptocurrency is attracting, by offering fake investments that don’t really exist or in reality are worthless.

Here are some ways that they are doing so:

• Advertising on social media – Scammers will use fake endorsements and images of celebrities or public figures to promote these investment opportunities. The ads will link to professional-looking websites to persuade you to invest using cryptocurrencies or traditional currencies when in reality this is not regulated and sometimes non-existent.
• Software hacking – Scammers can also manipulate software to distort prices and investment returns and may even scam people into buying non-existent crypto-assets. The firms operating these scams are usually based outside the UK but will claim to have a UK presence.
• Accessing your digital wallet – You should always have sole control of your cryptocurrency ‘wallet’ and nobody else. If you didn’t set the wallet up yourself or can’t access the money, this is likely to be a scam. You should stop making payments right away and remove any personal details.

Other common investment scams

Cloned Firm Investment Scams

Cloned firms are the criminal’s way of getting past the due diligence and authentication checks people tend to undergo before making an investment. By pretending to be a legitimate firm the potential investor will feel in safe hands when they can:

• Check the firm is regulated by the FCA
• Investigate online reviews on the company
• Receive legitimate-looking documentation

Criminals are aware of ‘cold calling’ tactics that are widely warned about now and have moved on to other methods of gaining access to our money. For example, they may host fake comparison sites that give the impression you found the investment yourself, meaning it’s less likely to be considered a scam.

Our advice

Always use the contact details on the FCA 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.

Recovery Room scams

Another way criminals will try to approach investors is by offering to help them recover their money if they have recently been scammed, usually for an upfront fee. The criminals usually don’t provide an explanation as to how they’ll recoup the funds, or if they do it’s likely the explanation will be false or implausible.

Be extremely wary of any unsolicited contact from people claiming to know about your previous investments accompanied by an ask for an upfront fee that are usually disguised as tax or miscellaneous legal costs. This is another scam trying to extort further funds.

Recovery rooms generally use a web-based email address. The FCA never uses webmail providers to contact consumers, nor does the Government, law enforcement agencies or law firms so be sure to double-check the sender’s address before taking any action.

Steps to protect yourself before you invest

If you’re planning on investing, here are some important tips to help prevent you from falling victim to a scam:

• Do your own checks: Seek reputable, independent financial advice before you commit to an investment and never take advice from the company that contacted you directly.
• Refer to the FCA register: Before you hand over money, ensure the firm you use is on the FCA register and is allowed to give financial advice (opens in new window). You should also verify any contact details via the register too. If they’re not on there, or the details don’t match, it’s likely a scam.
• And the FCA list of authorised firms: Check the FCA list of unauthorised firms which is updated regularly. They list businesses believed to be involved in fraudulent activities. You can also carry out further scam checks on this website.
• Think before acting: Be cautious of all unexpected calls, emails, and text messages. Don’t assume they’re genuine, even if the person seems to know a lot about you or your previous investments.