How to spot an investment scam
Is it a legitimate investment?
Stop: If you think you’re unsure about an investment:
- check to see if they’re registered with the FCA
- see if they’re on the FCA warning list
- tell someone - find an advisor.
What is an investment scam?
An investment scam is when someone offers you a fake - but often convincing - opportunity to make a profit after they hand over a sum of money.
There are three main types of investment scams
- A totally fictitious investment which doesn’t exist.
- The investment exists but the scammer takes the money instead of putting it in the opportunity.
- The scammer pretends they’re representing a legitimate and trusted investment group, but they’re lying.
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Investment scams in focus: cryptocurrency scams
Cryptocurrencies are virtual peer-to-peer currencies that are decentralised. This means the currency only exists online and is not controlled by a bank, treasury or country – you can’t get physical notes or coins from the bank.
Bitcoin is the most famous cryptocurrency, but there are more than 1,500 cryptocurrencies including other well-known ones such as Ethereum and Litecoin.
Many legitimate businesses – such as Expedia and Microsoft – accept cryptocurrencies as payment.
Quick transaction times is one of the reasons people like cryptocurrencies. But, cryptocurrencies also allow you to pay for or sell something anonymously, so they also appeal to scammers and shady online dealers.
Before a new cryptocurrency is launched on an exchange, you will be able to buy cryptocurrency coins or tokens as part of an Initial Coin Offering (ICO). This is usually what's known as a pump-and-dump – when a price becomes inflated at launch, and then rapidly crashes.
If you don’t understand a cryptocurrency or an investment, avoid it. Do not hand over any money.
A scam can take many forms, this could include:
- a fake cryptocurrency which doesn’t and won’t ever exist – for example if it’s a fake Initial Coin Offering (ICO)
- a bogus investment which promises to put money in a legitimate cryptocurrency
- a dangerous website link that then downloads malware onto your computer
Investment scam warning signs
- Companies contact you out of the blue. This could be through a cold call, text, message on social media, email or brochure.
- They pressure you into making a rushed decision. This could be with a limited time offer, bonus or discount if you sign up before a deadline.
- They call or email you repeatedly or keep you on the line. This is to try keep you engaged so they can pressure you to make a rushed decision.
- It seems too good to be true. The old saying rings true - if they downplay the risks but the investment is high return, it could be an investment scam.
- They ask you to keep the investment quiet. The scammer might tell you the investment opportunity is just for you and ask you not to tell anyone.
- They’re not registered on the FCA website. In the UK, a firm must be authorised and regulated by the FCA to do most financial services activities. See if they’re registered with the FCA.
The FCA also has a warning list so you can check if you’re dealing with a known scam.
You will likely be approached either through a cold call on your landline or mobile or via an email or text. The questionable investment could be advertised on social media or in a pamphlet.
I think an investment scammer has contacted me
- Hang up. Stop all contact with the scammer.
- Report it. Use our guide to report a scam.
I’ve given money to an investment scam
If you’ve handed money over to a scam, use our guide through what you need to do to recover your money.
These are some of the most common scam investments.
- Ponzi and pyramid schemes. Where money from new investors is used to pay former ones.
- Binary options. Betting on whether the price of something will go up or down, for example gold, oil or stocks, and you can either win or lose.
- Unregulated products. Such as gold, diamonds, wine, hotels, bamboo, parking, storage, student accommodation.
- Early pension release. Be wary of any scheme offering to help money from your pension before you’re 55. You may never see your money again, and get hit with a hefty tax bill.
- Overseas holiday properties Scammers lure in people with cheap overseas properties which don’t actually exist.
- Land banking. You buy a small plot of land which will be sold to a developer for a big profit.
- Graphene. A type of carbon which may be used in some electronics in the future. Scammers put the pressure on to invest quickly. The market is unregulated.
- Forex trading. Unauthorised traders offer guaranteed profits and most victims initially get a small return to think the trader is legitimate.
Online investment scams
Fraudsters now use platforms such as Facebook, Instagram and Twitter to lure people into investing in cryptocurrencies, foreign exchange and binary options. The scammers often have convincing social media profiles or websites with bogus reviews.
The Financial Conduct Authority warns that fraudsters promote themselves through social media channels by using pictures of luxury items, such as expensive cars and watches, to entice people.
See more about how to spot a social media scam in our guide.
Always check the investment is legitimate before handing over any money.
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