Investment scams have been with us for hundreds of years. The South Sea Bubble investment scam dates back to 1720 and cost hundreds of investors their life savings. Ponzi schemes were the flavour of the times at the turn of the millennium to entice innocent investors to art with their money, whilst the current trend of cryptocurrency based fraud is a major concern for authorities.
The 2000 film ‘The Boiler Room’ focused on the a chop stock brokerage firm that runs a “pump and dump”, using brokers to create artificial demand in the stock of delisted or fake companies. When the firm is done pumping the stock, the firm founders sell and trade for legitimate stocks for record profits. However, the investors then have no one to sell their shares to in the market when the price of the stock plummets, causing them to lose their investment.
Whilst the film focused on the fictitious investment firm “J.T Marlin” and their illegal practices, it isn’t a pure work of fiction. Rogue investment companies exist today, to such an extent that the Financial Conduct Authority (FCA) have issued a report on clone investment scams.
In 2020 scammers sold more than £78 million in fake investment products in the UK alone, with the average loss to victims over £45,000. Some may think a 20 year old film was a work of fiction but it seems that clone investment firm scams are closer to the truth than we all believe.
The modus operandi used by many of these fraudulent firms is in the first instance to replicate/copy/rip-off legitimate firms, licensed in the case of the UK by the FCA. Websites can be quickly copied, replacing the name of the firm and the logo within a few minutes. Domain names can be easily registered, now using relevant gTLDs such as .Fund or .Investments, investment material and fake prospectuses can be generated quickly. It doesn’t take too long, too much investment and too many innocent victims for a fraudulent financial services firm to be making a profit.
The concept of the “Boiler room”, a high pressured, cold calling sales environment is often the starting point for the fraudsters, using cheap labour to plough through lists that have been bought, often segmented through social media interactions and profiles so that the calls are never truly random. But the nature of that conversation will be very much focused on the hard sell of these “once in a lifetime” investments.
They’ll try to convince you that they work for a genuine company and use high-pressure selling tactics to get you to buy ‘investments’. These ‘investments’ are worthless and often aren’t even offered by the company they’re pretending to be. Some may make multiple calls to build that element of a relationship and thus credibility. However, the investment and the subsequent promised high returns don’t exist.
Whilst most of us will say we wouldn’t fall for such a scam, we do. As the figures from the FCA prove, this is a highly lucrative business for the fraudsters, one that has delivered at least £78 million in the last twelve months to them, and that is only the cases that have been reported to them.
The common sense approach is if something sounds too good to be true, especially financial investments, it probably is. Regulated investment firms in the UK operate to a Code of Conduct and will not simply call anyone up randomly and ask them to invest over the phone. Virtually all regulated financial services companies will contact you via secure message. They certainly won’t ask for deposits to be sent via Paypal, Western Union or normally bank transfer.
If you are in any doubt, check their details on the FCA website (www.fca.org.uk). If they do appear on their register but you are still unsure, look up their details and call them or email using those to check if the approach was genuine. Incoming phone numbers are easily spoofed by fraudsters to make it appear they’re calling from the expected location or company, as too are emails.
A few minutes of research could save you being the victim of a scam that could cost you thousands.