How to spot an investment scam

Despite heightened consumer awareness and education, more and more people fall prey to investment scams and fraud, especially in times of financial desperation. Increased access to technology, coupled with advances in artificial intelligence, means that investment scams are becoming more sophisticated, more cleverly disguised, and more difficult to identify.

As a potential investor, there are steps you can take to verify any potential investment before parting with your hard-earned money:

• Returns: Any investment that promises returns that are greater than what investment markets are able to generate should immediately sound alarm bells. If the investment promises to double or triple your money in a short period of time, this should be an immediate cause for concern and a clear signal to back off. Remember, no investment is without risk, so if you’re being offered guaranteed returns at ridiculously high rates, something is not right.
• Jargon: The marketing jargon used by the investment company should also give you clues to its credibility. Fraudulent investments are notorious for including words such as ‘exclusive offer’, ‘select’, ‘elite’, ‘limited offer’ or ‘opportunity of a lifetime in their marketing material.
• Licensed: The investment company should be licensed with the Financial Services Conduct Authority (FSCA) and should display their FSP number on all their marketing material, including their website, business cards, brochures and social media pages. If you’re unsure, phone the FSCA and verify the organisation.
• Bank account: If the bank account of the investment is held in the name of a private individual, be suspicious. If it is a legitimate enterprise, it would hold a business account with a reputable financial institution.
• Physical address: The physical address of the organisation should also appear in all their marketing material, including websites and brochures – but don’t take the printing of a physical address at face value. Use Google maps to look up the address and locate the actual building. Many legitimate companies pin their physical locations on Google maps as an added measure of credibility.
• Free email accounts: If you receive email communication from the investment company that is sent from any free email service such as Gmail, Yahoo or Hotmail, be very cautious. A legitimate investment company would operate off a secure email server and would not allow their customers’ confidential information to free email servers.
• Whatsapp: Any investment opportunity that is communicated with you via Whatsapp should be regarded as circumspect, especially where the message was unsolicited. Besides being an inappropriate platform to conduct investment business on, it is also unprofessional and unsafe.
• Private information: Any unsolicited email, phone call or text message that invites you to participate in a scheme should raise red flags, especially if you are asked to provide private information. Specifically, any communication that requires you to input personal details, ID number, bank account details, Sars information, or to confirm anything via a hyperlink should be approached carefully.
• Pay to play: After piquing your interest with clever marketing jargon, many investment scams require you pay upfront fees to participate in the scheme, or to buy-in to the scheme. Any investment requiring that you ‘pay to play’ should be considered with suspicion.
• Recruitment: Many multi-level marketing schemes and Ponzi schemes operate a business model which requires each ‘investor’ to recruit more ‘investors’ in order to keep the scheme afloat. If the scheme involves any form of recruitment, it is likely to be some form of a pyramid scheme.
• Lavish lifestyles: Another ploy of investment fraudsters is running social media accounts that flaunt their lavish lifestyle with trips to exotic destinations, flashy cars and designer gear. Make a concerted effort to check on the Instagram, Facebook and Twitter accounts of both the individual you are liaising with and the company they represent.
• Business model: The company should take time to explain their business model to you, including underlying assets and how income will be generated. The business model should be wholly transparent and easy to understand. Investment scams are notorious for their complex business models and technical jargon. If you don’t understand how your money will be used to generate investment returns, proceed with caution.
• Google search: Do a comprehensive search on Google using both the name of your contact person and the name of the investment company. This is an effective way of churning out any previous complaints or interactions that other people may have experienced. If your search reveals anything untoward, back away.
• Giveaways: Many investment scams offer free giveaways of goods and services in order to sweeten the deal. Giveaways can include bitcoin or other digital currency, holiday packages or free weight loss shakes. Reputable investment companies with good track records in the industry do not need to go to such lengths to attract investors, so this type of marketing should sound alarm bells.
• Competitions: If you receive communication that you qualify for a loan you didn’t apply for or won a competition you didn’t enter, take a considered approach. Your chances of winning the lottery are slim, especially if you didn’t buy a ticket.
• Pressure: A reputable investment company will not pressure you into making a quick investment decision or convince you to invest more money. If you’re being pressured into making a decision because the offer is limited or the offer is only available for a certain period of time, you should ask questions about its authenticity.
• Track record: Ask key questions about the company’s track record. What is the company’s reputation? Who owns the business? What are the directors’ qualifications and experience? Does the business have any professional affiliations and/or outsourced partners? Ask for client testimonials, insist on a site visit and, if possible, ask an independent financial advisor for an opinion before parting with your money.

This article first appeared on Moneyweb and has been republished with permission.

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