Keep your wits about you – a history of financial scams

How to avoid becoming an investment fraud victim.

Conmen have always tried to cheat people out of their money. But investment frauds have become more sophisticated in recent years, and activity has soared ever since the Pension Freedoms of 2015 opened up the potential for criminals to dupe people out of their entire life savings in one swoop. Last year alone, Britons lost almost £200 million to scammers.

Not so long ago scams were easily identifiable: you received an email from a Nigerian prince, or notification of a lottery win, or a communication pretending to be from a firm you knew but with misspellings and dodgy logos. Criminals traditionally targeted people who had fallen on hard times, using lists of bankruptcies and borrowers with low credit ratings. Today, everyone is a target and recent research from the Financial Conduct Authority suggests that people who consider themselves to be financially astute are just as likely to be suckered.

Five million savers in danger of losing retirement funds to scammers

Alternative investments

At Money Observer, we’ve exposed a number of crooks over the years who were trying to peddle exotic investments including carbon credits, forestry, farmland, property developments, storage units, renewable energy and biofuels. Some were making wildly inflated claims about bad investments, while others were promoting investments that did not exist at all.

Surprisingly perhaps, these schemes are sometimes advertised in magazines and newspapers. To do so is not illegal because ‘exotic’ investments are unregulated, so there is no policing authority or central register requiring any checks or data on the purveyors.

Property developments are a common choice for conmen. In one memorable case, we warned readers away from a firm pretending to be selling farming land in the Ukraine – in fact it has always been illegal for foreigners to buy farmland in the country. We also met a reader who had invested in a hotel room in Slovenia with the aim of making an income when it was rented out. Having paid over his money on not much more than an artist’s impression of the hotel, he heard nothing for 18 months, and it was only when Money Observer became involved that he eventually received a certificate of ownership and a cheque that had long been assured was in the post.

The simple lesson here is that if you are ever tempted to purchase such an asset offshore, demand to be flown there to assess it for yourself. Law on purchasing land and property differs significantly between countries, not to mention the constant risk of currency fluctuations going against you.

Can you recognise the latest pension scams?

Wide open to abuse

Carbon credits are another area wide open to abuse, partly because they are invisible units that never get captured, counted or delivered. Several schemes claim to sell voluntary emission reduction (VER) credits, each equivalent to one tonne of CO2, to businesses wanting to reduce their carbon footprints. That is quite different from certified emission reductions (CERs), a type of carbon credit issued by the Clean Development Mechanism (CDM) executive board for emission reductions and verified under the Kyoto Protocol.

Bitcoin is another gift for fraudsters as transactions are very private, and the public has heard that it is possible to make tremendous profits. Criminals claim their products are the ‘new’ up-and-coming cryptocurrencies, suggesting that for those who were late for bitcoin, this is the next best thing. There have been fake bitcoin exchanges such as BitKRX, which presented itself as part of the largest trading platform in the country, and bitcoin Ponzi schemes based on paper returns, which needless to say are worthless.

Fraudsters also clone bona fide financial institutions. Recently, scammers have mimicked top 10 accountancy firm Smith & Williamson to target victims. This type of scam can be very convincing, with highly personal information, updated dates and links to other social media.

Dodgy investment schemes are often sold by salespeople who rake off an introducer’s fee of around 20-30% and pass the rest to the ‘brains’ behind the scheme. They will want to chat to you over the phone to ensure you have sufficiently large savings to defraud, generally at least £15,000. Cold-calling is also common, although pension cold-calling became illegal in January.

Every kind of cynical sales manipulation is used. The salesmen are usually well-spoken and have learned techniques designed to make you trust them, such as repeating your first name and finding common ground. It can be hard to imagine that such a person would happily rob you of your life savings.

Unrealistic claims will be made for the investment, and the salesperson will often make out it is a ‘buy now while stocks last’ situation, deliberately designed to curtail the time you have to think about it. As well as being asked to pay up quickly, you may be asked to pay in an unusual way such as by money transfer or vouchers.

Back at the criminals’ HQ, a typical pattern is for the marketing operation to focus exclusively on selling one investment scheme over a period of six to nine months, and then turn its attention, wholesale, to another investment scheme. The first investment scheme will then fail or be dissolved, taking the investors’ money with it, and the marketing firm will then move on to a third scheme, while the second is left to flounder, and so on.

Financial scams are on the rise: six ways to spot one

Scam loans and refunds

Scams are sometimes in the form of loans and refunds. If you have a poor credit rating, a loan shark will make much of the fact that you do not have to go through any financial credit scoring process to invest in their products or take their loans. Refunds are usually couched as time-limited, whereas no bona fide refund would give you such a short window to make a claim.

Consumers are also losing £674 a minute to conmen who convince them to transfer money from their bank accounts, known as Authorised Push Payment fraud. Often they convince the account holder to make the transfer by making them believe it is an individual they are planning to send money to anyway, such as a solicitor during a property purchase. Always double-check the receiving bank account details.

Pension scams are also still rife, and can have a particular sting in the tail. While you can take 25% of your pension pot tax-free, if you take more than that, HMRC slaps a hefty tax charge of 55% on the excess. In practice, many people who lose large pension funds to fraud suffer the double whammy of subsequently facing a tax demand as well.

Useful resources

• Check the company credentials on the FCA Register ( uk or call 0800 111 6768).
• Check the FCA ScamSmart website, which lists schemes identified as potential scams. Test your scam radar by taking the FCA’s scam quiz ( pensions-scam-quiz).
• Check out the firm’s directors at companies house ( uk ). Are the accounts up to date? How many failed firms have links to it?
• Talk to the Pensions Advisory Service ( or PensionWise ( if you’re over 50, for a free consultation to find out about the various options for your pension.

- UK Care Guide has produced a guide that contains 11 tips on how to spot you are being scammed. 

Celebrity endorsements

Adverts using celebrity endorsements are increasingly common. In January, Martin Lewis, who founded MoneySavingExpert, settled a lawsuit with Facebook after a year in which over 1,000 scam adverts abusing his name or image appeared on the site. He sued Facebook and they came to a legal settlement that Facebook would donate £3 million to Citizens Advice to deliver a UK Scams Action project, and add a scam ads reporting tool to its site. You simply click the three dots in the top corner of the ad and there is an option to ‘send a detailed scam report’.

Images of Holly Willoughby have also been used to trick unsuspecting people into signing up to an online trading platform that does not exist, pretending that the TV star made over £200 profit from an initial investment of £250 on a live trading platform in the space of three minutes.

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I'd suggest don't put your hard earned into a new fund however good the track record of the manager and the overwhelming advertising push of the fund platform e.g. WPCT!

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