What is an investment scam?

15th March 2018

by:

Time has flown since my last blog post (Staying Safe Online – December 2017), but we’ve been busier than ever here at Starling. We recently won Best British Bank and Best British Current Account Provider in the British Bank Awards, launched Settle Up to our customers and introduced some exciting new partners to our Marketplace.

In this edition of my “all things financial crime” series, I’ve switched focus from online shopping to scams, and perhaps more importantly – what to look out for to help you spot a scam.

Scams come in many forms – and some are more prevalent than others. But rather than illustrating all of them, here I’ve focused specifically on investment scams, as there are a lot of known approaches which can often go easily undetected or unrecognised, resulting in life-changing impact for those involved.

What is an investment scam?

Investment scams are how fraudsters try and convince people to part with their money through the offer of above-average levels of return, at what appears to be minimal risk. I consider the most well-known to be the Ponzi Scheme (heard of it?) – which relies on income from new investors – rather than legitimate trading or investment activity – to stay afloat.

Eventually this scheme collapses when the money owed to existing investors is greater than generated income from the new investors joining the scheme.

It’s easy to understand how these schemes can hook us in. Who wouldn’t want to double or triple their initial investment within three months? I would! But like most things, if it sounds too good to be true – it probably is.

In my experience of investigating financial crime, I’ve seen some incredibly advanced examples of investment scams, including established company websites, examples of customer and investor feedback and slick, professional-grade marketing.

The fallout for scams like these can be devastating for those involved. You just need to google ‘Investment Scam’ to find daily news articles and mind-blowing figures of life savings being deceitfully obtained. So how can you spot (and avoid) an investment scam?

How can you spot an investment scam?

Here are some tips:

  • How have you been approached? Did someone stand at your front door, send you a surprising email or call you unexpectedly? Unsolicited approaches should always ring alarm bells.

  • Are they pressuring you into making a decision? A legitimate company should never force you into making an immediate decision or make you feel uncomfortable.

  • Are you being promised low risk & high return? Does this sound unrealistic, or, too good to be true? Can you contact the company involved, or are you communicating via a generic email address or mobile phone number? This may indicate it’s not a legitimate company.

  • Check the FCA register of regulated companies to ensure the company you are dealing with is regulated. Always access the register via the FCA website directly, and not via any links provided by the company you are dealing with.

Most financial products and services can only be offered within the UK if the company is authorised, registered or approved to do so.

The FCA also have a Warning List of firms you’ll wish to avoid.

  • Have you been approached regarding access to your Pension? Scammers sometimes target pensions, be careful.

  • If you think you’ve been a victim of a scam, you should contact Action Fraud.

Scammers will target anyone, no matter their age or experience. If you’ve been approached about an investment, check out the useful ScamSmart tool on the FCA website.

Starling's security

FSCS logo on vault image

We take customer security extremely seriously here at Starling, and we’ll never ask you to transfer money to a ‘safe’ account or request your PIN or password.

Sometimes our financial crime team may contact you about a specific transaction, but we’re unable to give any financial advice, so if that’s what you’re after, we’d recommend seeking independent professional advice.

If you’ve received contact from Starling Bank and you’re unsure about the legitimacy, be sure to hang-up and contact us directly using the number on the back of your card, or you can reach us via in-app chat.

If you’re just keen to test your knowledge or learn more on this topic, try the FCA’s Scam or Smart test, or, visit our friends over at @Take5 who have some more information on what you can do to avoid scams.

Until the next time!

Read Laurie’s blog post on how to stay safe online.

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