How to spot an investing scam

Have you ever been contacted by a business selling an investment ‘opportunity’ guaranteeing returns way above those anyone else can promise?

One such firm, Exmount Construction, has just been wound up by the high court, with over £1 million of hopeful investors’ money missing, unlikely to be seen again.

As the Insolvency Service investigator put it: “In reality, this was a scam and we urge potential investors to carry out due diligence to ensure they use their funds on legitimate investments.”

We can all differentiate between a real investment opportunity and an invitation from a former US ambassador to ‘park’ $2 million from a Nigerian prince in our bank account, can’t we?

(An actual ‘offer’ received by one of the Oak Four team last week. No doubt you’ve had something similar in the past.)

The truth is some of the most sophisticated investing scams are pretty difficult to spot at first glance. Glossy, professionally produced brochures, website addresses that look like the real thing, a legit-looking logo, a reassuring voice on the phone… it’s easy to understand how people fall victim, especially with the torrent of ‘information’ arriving in our inbox daily.

What to look out for

The first thing to remember? If it looks too good to be true, it probably is.

Is it really likely that one company could offer you 5% more per annum than literally everybody else?

Warning bells should start ringing if any of the following applies:

  • They contact you out of the blue (e.g., an unsolicited email or phone call)
  • They keep contacting you if you don’t respond
  • The put pressure on you if you do talk to them – for example telling you the offer only lasts another 24 hours – and don’t give you time to do any due diligence
  • They guarantee a return that’s significantly higher than cash deposits. Returns like that may be possible, if unlikely, but certainly cannot be guaranteed.

How to check them out

  • Is it regulated by the Financial Conduct Authority (FCA)? If it’s not AND it seems too good to be true, that’s a huge red flag. FCA regulation is a sign that you, the consumer, are protected and can trust the business to look after your money and your financial data, and give you sound financial advice.
  • When did the company start trading? Search the Companies House database to see if you can find any details. If the company isn’t listed, stop searching.
  • Who owns the company and who are the directors? If the business is listed on Companies House you’ll be able see the list of directors along with any other current or previous directorships they hold. You can do a Google search on the names of the directors to see if they have been involved in any dodgy companies beforehand. If it’s hard to work out who ultimately owns the company, don’t trust it.

These are simple steps to take and should flag up dodgy businesses before you get involved with them.

Just ask

If you’re not sure, ask us!

A few years ago, several Oak Four clients started mentioning an investment they’d come across: a parking scheme at Glasgow Airport. Invest, and you’d own a piece of the car park and would benefit from returns of around 8-10% per annum.

We searched Companies House, googled the company name and the names of the directors, and found out they had been involved in investing scams before. They simply set up new companies with glossy brochures to lure clients in. They would then take the money and, a few months later, the business would disappear along with the investors’ cash.

Luckily we were able to stop a few clients falling for this ‘investment’, along with others promising similar returns along the same lines.

The internet is your friend. Although it’s frequently the means by which investing scams gain traction, it’s also where you can track down the truth.

Check out our recent blog about the power of fake news for more thoughts along these lines.

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