Copy that. No return on investment from cloned firms

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.

Money can’t buy you love

Like is or not, the commercialised world we now live in is determined by events in the year. As soon as Christmas is over, the focus is on Easter. Halloween has now become the in-thing whilst every year there seems to be another day of celebration slipped into our conscious by retailers and their marketing teams. One event that is now looming large is Valentine’s Day. For some people this is the opportunity of over-exuberance and lavish gifts to win the hearts of someone. But it is also a big date in the diaries of the fraudsters in trying to part us from our cash.

One industry that has seen the levels of fraud rise as been online dating. As with the way we consume our media, do our shopping and interact with each other, technology has made it easier for us to try to find love, with online apps now catering for all potential suitors. It has never been easier to find love, someone said to me last year and whilst I understand what they are saying, it has also never been easier for a fraudster to break someone’s heart and their savings.

A recent example of the increase in nefarious activity in the online dating world has been an increase in investment-based scams that have started off as online conversations between two people supposedly “looking for love”. INTERPOL has recently brought the subject to the attention of all of its 194 member countries by issuing a Purple Notice outlining a specific modus operandi on dating apps and websites.

The International Criminal Police Organisation have compiled evidence based on reported cases that have used dating websites, with, as they refer to is, an artificial romance being established, trust being built and then sharing details of an investment scheme that they encourage them to take part in. After all, having spent time getting to know each other, sharing personal and potentially intimate details, the long-term prospects of a relationship look good. The fraudsters “sell” the investment scheme, often accessed via an app and continue to encourage further investment.

With many relationships now having to start and grow online due to the restrictions that COVID-19 has placed on us all, the conditions for these scams to fester has never been stronger.

The investment firms have authentic looking websites, domain names that could be using homographs to make them look real (Greatlnvestment.com rather than GreatInvestment.com – looks identical but there is a small ‘l’ rather than a capital ‘I’) and fake reviews that can be bought easily online. Everything looks good until one day the money, the firm and the potential love of their lives just disappears.

INTERPOL’s Financial Crimes unit has received reports of cases from around the world and have also reached out to the more popular apps and websites to ask for their help in raising any flags from users of suspicious looking activity. On Valentine’s Day it is a case of not only considering the “it” but also “they” in the old adage of If it looks too good to be true, it probably is!

No Return on Investment

Action Fraud, the UK’s national reporting centre for cybercrime, has seen a growing number of reports relating to investment fraud, with the average loss now reaching £45,000.

Education and awareness of scams and potential fraud has greatly reduced the number of victims in many cases of cyber crime, but the ease of being able to create convincing an online presence, based by social media has allowed the fraudsters to become more authentic-looking and thus able to hook a new set of victims.

Technology has made it so much easier for us all to be able to invest in equities. Most reputable firms now have apps that allow you to buy, sell and track your investments from the palm of your hand. These have become increasingly popular with older generations who tend to have more available funds and time to research who to invest in.

However, Action Fraud has seen a rise of 29% in cases of ‘clone firm fraud’ where genuine looking investment firms are created, including professionally designed websites, and investors are targeted to deposit funds that are never seen again. A frightening stat from 2020 is that more than £78 million was reported lost through investment fraud. The Financial Conduct Authority said it received over 3,700 reports of these clone scams during the lockdown in 2020.

Some of the tactics used by fraudsters to entice victims are the same as those used by genuine firms. Social Media presence, SEO and AdWord campaigns, outbound email and telephone marketing. It does not take much effort or cost unfortunately to create an authentic looking investment firm online.

There are some steps that can be taken by potential investors though to check if the firm they are considering using is genuine. Here’s our five step guide to fraud prevention.

  1. Look at the domain name the company is using and do a WHOIS check to see when it was registered and where. If it was relatively recent it could be a sign of a company that isn’t what or who it seems.
  2. On their website look for the contact details. Is the address a genuine building – use Google Streetview to look at the building to see if it is genuine. Do they use mobiles and retail email addresses (gmail, yahoo, aol etc)? They should be signs that it may not be all that it seems.
  3. Is the content on their website all theirs? Often scam websites will lift content directly from someone else. Take a sample paragraph and paste it into a search engine and see what the results are. If there is duplicate text elsewhere, investigate if it has been directly taken from a reputable firm’s website.
  4. If the initial approach was by phone, be very wary. Cold calling on investment opportunities especially if related to pensions has been banned in the UK for over a year.
  5. Any reputable investment firm will have a Firm Reference Number (FRN) which can be checked on the FCA’s register. Use the FCA’s website to check the firm’s detail and whether the contacts you have match.

It is almost impossible to get any investments made back from the fraudulent firms. They close down their operations immediately at any sign of being discovered and move on to a new scam quickly. Remember ABC – Always Be Cautious – when it comes to any type of investment. As with most things in life, if it looks too good to be true, it probably is!