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FCA launches campaign on investment scams

The Financial Conduct Authority (FCA) have launched a campaign to warn people about investment scams. They get about 5,000 calls a year from investors about suspected scams and the average investor loses £20,000. The FCA have launched a new web site called Scansmart (see ) which enables you to learn about the warning signs and even provides a menu on which you can check the investment you are considering.

The FCA gives the key signs that the investment may be a scam which are:

  1. You are contacted unexpectedly about an investment opportunity through a cold call, email, or follow up call after receiving a promotional brochure out of the blue.
  2. You are pressured to invest in a time-limited offer, for example, a bonus or discount is promised if you invest before a set date.
  3. The risks to your money are downplayed, for example you are told that you will own assets you can sell yourself if the investment doesn’t work as expected, or legal jargon is used to suggest the investment is very safe.
  4. The returns sound too good to be true, for example, better interest rates than those offered elsewhere.
  5. You are called repeatedly and kept on the phone for a long time.
  6. You are told the offer is only available for a limited time or to a limited group of people.

As someone who is often the initial contact point to ShareSoc for new inquiries, and who our Members also sometimes contact if they have a problem, I have received many calls about dubious investments over the years – usually when it’s too late to do anything about it. Prevention is definitely better than cure in these circumstances. As the FCA warns, the key is to avoid investing to begin with in dubious propositions.

The nature of these scams has changed somewhat over the years – for example there seem to be fewer promotions of investment in nominally “listed” overseas companies. But the characteristics of those who are duped remain constant. They seem to fall into these categories:

a) Those over a certain age (i.e. above normal retirement age) who have little real investment experience and get pushed into investments in unlisted companies, which are often alleged to be about to list. In other words investments which should normally only be sold to “sophisticated” investors with substantial experience of such investments or are high net worth individuals. The investors concerned appear to be gullible, and sometimes verging on senility without it being immediately obvious, and have an unreasonable trusting faith in the person who is selling them the investment (like all con-men, they are very persuasive though). The investors natural suspicion goes out of the window as they become attracted by the “story” they are sold.

b) Younger investors who again have little experience and are attracted by “green”, eco-friendly propositions. For example, biomass or hydro power generation, forestry, bamboo plantations and sustainable energy propositions. The fact they may be doing the world some good seems to cause investors to look at such propositions in a more favourable light and ignore the risks (or assume the promoters are of a similar benevolent point of view).

c) Investors in “alternative assets”, such as wine, diamonds, carbon credits, vintage automobiles and other exotica. The market for such assets is often exceedingly opaque, and once you are in you can’t get out. It might be exciting to own such “investments” and give you a warm feeling but usually the returns are negative.

d) Investors in gold and other precious metals, or holes in the ground of other kinds – I would include undeveloped oil and gas resources in that. Investors in gold mines or other similar propositions should be reminded of what Mark Twain had to say on this subject after losing money on some speculative investments: “a mine is a hole in the ground owned by a liar” (it may be apocryphal), or the older saying “a mine is a hole in the ground into which you pour money”. Having once invested in a business that transmogrified into a gold mining company after the first venture failed and then raised money from new investors on the prospect of re-opening a mine in central Asia, I know exactly the kind of investors who take up such propositions. In essence those who ask few questions and are blinded by the lure of gold. The company concerned was eventually struck off by Companies House for failing to file accounts after being unable to recover loans made to the mine owner.

e) Property investors where the proposition is usually to borrow money to buy the asset and you are in a geared play on the equity. After all property is “safe” is it not and will always have a value? Perhaps so but that does not mean you are going to make money from it. That particularly applies to overseas property investments and such things as “part-ownership” schemes which are fortunately less common than they were.

Do you fall into any of the above categories or are considering such investments? If so go to the FCA web site mentioned above to at least check whether you are dealing with an authorised firm and review what they have to say. Also make sure you take some advice from an accountant, solicitor or anyone with some investment experience because usually the scams are pretty obvious to anyone other than the patsy.

One of the key principles is never to listen to anyone who phones you out of the blue without any prior contact (and if they claim some previous contact do not believe them either unless you remember them). Indeed it’s probably safer to go ex-directory which may remove some of the calls if not all. Likewise if you get an email from someone that promotes an attractive investment proposition, and perhaps points you to an impressive web site, ignore it – indeed it’s safest not to open any web site link in an email from someone you don’t know.

In summary, if you think there are golden fleece out there just ready to be plucked from trees, then it is likely to be you that will be fleeced instead.

Roger Lawson

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