How to spot an investment scam
Phoney financial advisers, fake websites, misleading promises… No one is safe from investment scams. While the techniques involved can be subtle, there are certain things to keep an eye out for. Here are some of the best strategies and responses to avoid falling into the trap.
With today’s high inflation, you may be tempted to diversify your investments into solutions promising higher returns. Be careful, though, because scams are everywhere and the scammers are constantly improving their skilful techniques. However, with a little care, it’s almost always possible to spot a scam.
Common investment scams
Fake online trading sites
You receive an email or see an ad online that talks up a high-return risk-free investment. You arrive at a trading site that seems trustworthy and reliable. In reality, it’s all fake. These websites are very well designed. The fraudsters offer a range of financial products with realistic paperwork and fake license numbers. They even post positive online reviews about their fictitious company.
Non-standard investments are never risk free and have no guarantee of returns.
You’re encouraged to put your money in non-standard investments with guaranteed high returns, such as wine, diamonds or renewable energies. Beware! Non-standard investments are never risk free and have no guarantee of returns. Although many such companies are legitimate, some only want to cheat you. Do your own research and always get advice from recognised experts before making such investments.
You get a call from someone offering you an exceptional investment opportunity. The so-called adviser is convincing and appears to be professional. They inspire your confidence and make you believe they’re qualified to offer you the investment product. In reality, they’re trying to get their hands on your personal information and money.
Useful info: To win your confidence, the fraudsters may suggest a small initial payment, which earns you a little money. You then decide to invest more. But when you try to collect your returns, they no longer respond to emails or calls, or you can no longer log into your account.
You’re drawn to an ad that offers advice or training on becoming a trader or real estate investor. While some offers are authentic, many are merely scams. Phoney trainers promise easy money thanks to their method. They offer free courses that turn out to be costly, have no expertise, or simply lure you to fraudulent platforms.
Scammers catch your attention with current trends and promise investments with very high returns.
Crypto asset scams
Scammers catch your attention with current trends and promise investments with very high returns. They use a range of techniques. For example, they lure you onto fake cryptocurrency exchanges, launch new crypto assets that turn out to be phoney, or sell you copies of non-fungible tokens (NFTs). When it comes to crypto assets, always be on guard. Even if the offer is legitimate, these are extremely volatile and risky investments.
Advice from new “friends”
You meet someone on a social network or dating site. They earn your trust, then tell you about investments that have made them lots of money and offer to bring you on board. Be careful, it’s probably a scam.
“Pump and dump”
You learn via chatrooms or social networks that the value of a stock is about to shoot up. Like other investors, you buy the stock, causing the price to rise. In reality, these shares were bought on the cheap by crooks who then spread false information to create interest and artificially raise their price. They then sell all their positions, leaving the remaining investors with shares that are effectively worthless. Never fall for the illusion of market timing; instead focus on long-term investments.
Recovering lost funds
You lose money on a bad investment and are contacted by a so-called financial professional who offers to help get it back. In return, you’re asked to provide personal information and pay a fee. Ultimately, you get no help and the scammer disappears with your money.
Scammers clone the website of a regulated entity, such as a bank, an insurance company, or an asset manager. They offer you financial products or securities in the entity’s name. Since the entity is well-known and regulated, you trust them. However, the names, official logos and even the (copied) registration number used by the scammers are all false. In reality, the contact information or forms send you to fake sources.
Financial investment scams can also be spread by acquaintances or relatives who are convinced they’re providing you with a good opportunity.
The Ponzi scheme
You’re approached by someone who tells you about a good investment opportunity. You try it out and actually receive a return on your investment. However, in reality, there was no investment.
The Ponzi scheme makes you think you’ve invested your money in a high-yield product. However, the funds paid in by new investors are used to pay out fake returns (supposedly generated by the investment) to existing investors or to pay back those who want to cash out. When the fake manager is unable to find new sources of funding, he or she vanishes with what remains.
Useful info: financial investment scams can also be spread by acquaintances or relatives who are convinced they’re providing you with a good opportunity. This is known as a pyramid scheme (where the initial investors “recruit” new members).
What are the warning signs?
When it comes to avoiding all these scams, certain things should put you on maximum alert.
- They guarantee risk-free high returns
- You receive an unsolicited investment offer
- The product on offer is reserved for privileged investors
- They pressure you to make a quick decision
- You’re asked to make a deposit or pay a fee
- They ask for bank details or other personal information
- They don’t ask anything about your goals or your investor profile
- The entity’s contact details or bank account are located abroad
- The terms of the agreement are vague: lack of information about the company, the product on offer, etc.
When faced with any of these situations, or if your interlocutor is insistent or unprofessional, stay on guard, because it’s almost certainly a scam.
The Luxembourg Financial Supervisory Authority (CSSF) has published a detailed list of indicators that you’re dealing with a suspicious provider.
Useful info: On its website, the CSSF regularly publishes warnings to consumers that highlight the activities of fraudulent companies operating in the Grand Duchy. It also provides a search tool that allows consumers to identify entities regulated and registered in Luxembourg. If you have any doubts about the authenticity of a service provider, you can contact the supervisory authority directly.
Bear in mind that there’s no such thing as a risk-free high return.
To conclude, bear in mind that there’s no such thing as a risk-free high return. As William Goehry, Inspection Manager at BIL, points out in the article entitled “The top 5 bank frauds in Luxembourg in 2021”: “Don’t be taken in by offers that are too good to be true, they’re probably false!” If in doubt, don’t hesitate to contact your bank.
To find out what steps to follow when you fall victim to an investment scam, you can also consult BIL’s security/prevention page.