Investment Fraud Cases Explained
The high incidence of investment fraud in the EU and US makes it a growing topic of interest as individuals seek to understand these scams and how they operate. So, we’re going to take a look into investment fraud scams and explain what investment fraudsters do, with a focus on Boiler Room Scam.
Common Signs of Investment Fraud
Too good to be true
If an offer seems too good to be true, then it probably is. This is especially relevant since the UK economy took a financial hit throughout the pandemic, and interest rates are low across the board.
No legal entity
The firm isn’t authorised by a regularity government body: If the company isn’t on the Authority’s register this is a clear sign they are illegitimate; all firms providing regulated financial services in i.E. the UK must be authorised by the FCA. The FCA’s ScamSmart warning list also includes businesses that have been involved in investment fraud cases.
The ‘Halo Effect’
Investment fraudsters may come across as overly-friendly, trustworthy and likeable in order to convince their potential victims that they are genuine.
Pressure of immediacy
If a company stresses immediacy and uses pressurising techniques, this is a red flag. The company may stress that there’s a rapidly growing number of people investing to convince a potential investor to act fast.
Put simply, investment fraud occurs when investment fraudsters deceive potential investors into making purchases based on false information. Legitimate companies may lie to potential investors, saying they are making a larger profit than they really are in order to secure investment by falsifying audits and other company statements. Alternatively, fraudsters may set up fake companies or fake investment opportunities to scam victims into investing. Perpetrators of investment fraud scams rely on persuasive and convincing pitches to fool victims into giving them money. Some victims may only realise months down the line that they have fallen victim to investment fraudsters as they may have received an early return on their investment to reassure them.
What is a boiler room scam?
Boiler room operations are share scams. The term ‘boiler room scams’ refers to the idea that the sales environment creates the pressure of a boiler room due to the high pressure sales tactics utilised by the fraudsters. Boiler room scams is a type of investment fraud that’s on the rise because fraudsters are becoming increasingly convincing.
A fake stockbroker might contact you via telephone or online and share ‘insider knowledge’, pressuring you into buying shares which they ‘know’ are about to become very valuable. In reality, the shares are worthless, and the fraudster will sell them for a high price. As a result, the investor is left with a financial loss and worthless, unsellable stock. The fraudster may request for the victim to transfer their money for the shares to an overseas bank account or even a UK bank account. The fraudster can make a profit from simply taking your money without handing over your shares, selling genuine shares at highly inflated prices or presenting you with a supposedly “valid” share certificate. And, it doesn’t always stop here as fraudsters are also known to sell on their contact lists to other scammers.
In UK alone the number of investment scams is rising year-on-year. Between September 2019 and September 2020, just over 17,000 reports of investment fraud were submitted to Action Fraud. This was a 28% increase compared to the same period last year and amounted to £657.4 million in reported losses. Between September 2020 and September 2021 those digits explode and doubled. One of the negative effects of the COVID lockdown and “stay-at-home” restrictions. The experts of Artefaktum assume an estimated number of more than 450,000 victims in 2021 within the EU, who do not report these crimes due to shame, with an estimated damage amount of more than 1.5 billion EUR.
10 Signs of Boiler Room Scams
1. Receiving calls or emails from an unfamiliar source
Boiler room scammers will target individuals via cold calls or cold emails.
2. Being asked to keep communications confidential
Being asked to keep the contents of the call confidential is an immediate red flag pointing to boiler room fraud.
3. Being pressured into an immediate decision
In a similar vein, boiler room scams typically involve the scammer using scare tactics to strong-arm individuals into making a purchase decision on the phone. On the other hand, it’s highly unlikely that a legitimate company would act in this manner.
4. The promise of a guaranteed win
A guaranteed win is a promise even the most experienced companies wouldn’t make. All investment comes with risk, and legitimate companies will outline the risks to you before you invest. When it comes to boiler room scams, fraudsters will act as though you’ll win in every outcome, which simply isn’t possible with investment.
5. The promise of huge returns
If the caller can’t clearly explain how this return will be generated, chances are it’s a boiler room scam. Promises of discounts or gifts are also a big tip-off that this is a fraud attempt.
6. The caller has a prestigious job title at a fancy-sounding company
Scammers will overcompensate to try and reassure individuals by claiming to have a professional sounding name, title, or company. Some will even pretend they’re calling from a legitimate company and try to cause confusion by using technical jargon without stopping to explain.
7. The caller is based abroad
As it’s illegal to sell shares via cold calling in the UK, boiler room scammers will try calling from a UK-listed phone number even though they may be based overseas. Unfortunately, this can be difficult to detect.
8. Being asked to pay upfront
Callers who ask for upfront payment may use the term ‘advanced fee’ or ‘deposit’ and claim the sale can’t go through without this money. A legitimate company will allow individuals to go away and do some research before investing any form of payment to secure shares. If the caller pressses the matter, it’s usually a sign they are attempting a boiler room scam.
9. Being asked for bank details
A legitimate company will never ask for bank details over the phone and would always offer a secure method of payment. Scammers tend to ask directly for bank details on the phone – a huge indicator of a boiler scam.
10. Being provided ‘secret, insider knowledge’
If the caller really did have industry secrets, they wouldn’t be sharing them with a stranger on the phone. Callers who claim to have insider knowledge but can’t divulge how they are privy to it are likely to be attempting boiler room fraud.