The latest tricks being used by financial fraudsters

You’re promised a large profit with a low risk attached? – Caution, it’s a fraud. There is no such thing!

Be particularly carefully if someone promises you “secret tips” or a “miracle product”. High returns always come with a high risk. You could lose all your money! The following applies without exception in financial markets:  the greater the returns, the greater the risk!

If you are afraid that you make have been deceived – this is what you can do:

Cold Calling

Were you contacted by means of an unsolicited phone call and forced to invest? Caution, fraud! Terminate the phone call immediately, and do not under any circumstance conclude any transactions.

In this form of fraud you are called unsolicited and are forced using psychological tricks to invest in apparently lucrative products. A serious provider would never contact you without having obtained your prior approval to do so, as “cold calling” is illegal.

If you receive such calls, hang up immediately and under no circumstances should you conclude any transactions, since in most cases, by doing so, you will lose your money.

Ms. M. receives a phone call, during which it is explained to her that she has a one-off opportunity to make an investment with very high returns, and that nothing can go wrong with the investment. While she is sceptical at first, the caller urges her to invest, since such an opportunity apparently only arises once. Once she has invested, Ms. M. receives a further call, in which she is told that the price of the investment has fallen suddenly. To avert a loss she should pay again. Ms. M. however, never receives a pay-out from the investment, and losses all her invested capital.

“Cutting to the chase”

First you are deliberately requested to invest too high an amount, for which reason you decide to reject the chance to invest. Later you are approached again, and are offered a “better” offer, for with the amount to be invested is also lower. Investors that reject an investment as it is too high, are far more willing to make a smaller investment. This effect is consciously exploited: if you had been made the lower offer from the outset, you probably would not have invested!

Ilse F. is contacted by a broker over the phone. The broker offers her a package of shares for EUR 5,000. This is too much for Ilse F., so she rejects the offer. A bit later the broker contacts her again. He now has a better offer for her, which she only needs to invest EUR 1,000. Ilse F. accepts. Then the contact is broken off, and Ilse F. does not get her money back.

Advance payment fraud

You are asked to make an advance payment? Caution, fraud!

Never make an advance financial payment (for example by paying the fees for money transfer transactions)! Especially not, when you are promised large amounts in return. That is not serious. Such providers are mainly focussed on getting their advance fee and don’t actually want to sell you any products. Don’t fall for it!

You want to take out a loan, and the interest rate seems reasonable. A broker demands the processing fees in advance, for example to perform a credit check etc.  In the case of advance payment fraud the money that is transferred is lost, and you also do not get a loan.

Caution: an advance payment is not required for a loan! All charges and fees are retained by the bank from the amount of the loan.

Lisa S. receives a mail from a solicitor’s office, in which she is informed, that she is the only heir of a distant relative. She is asked to provide her account details so that her inheritance of EUR 100,000 can be transferred. However, before this is possible she is asked to pay EUR 230 to allow the inheritance to be processed. Once she has done that, contact is broken off, and she does not receive any money.

Post-payment fraud

You have already invested in securities from a dubious provider, and now want to get your money back. – To do so, the provider first of all asks you to transfer more money. This is post-payment fraud. Here are two examples to illustrate how this happens:

Alexander K. was called two years ago and was offered the chance to purchase shares in an American company. The shares were offered as an “insider tip”. He invested EUR 20,000 and was able to observe the positive performance of his portfolio. When he wanted to subsequently sell the shares in order to realise his profits, he was told that it was only possible to sell in multiples of EUR 30,000. The value of his portfolio stood at EUR 24,000. Alexander K. therefore transferred another EUR 6,000 in the hope of getting EUR 30,000 back in return. After he had made the transfer he received a phone call from the Chief Executive Officer, who apologised for the fact that his best trade had made a mistake in this regard. He said that sales could only be paid in multiples of EUR 50,000. Alexander K. was asked how much of the outstanding amount he was still able to pay, and that the company would put up the rest of the money. Alexander K. was afraid of losing all the money that he had already invested, in the event that he was not able to transfer a further amount. So he borrowed money and again transferred EUR 8,000 in the hope of now getting back EUR 38,000 in total.

What happened? His contact could no longer be reached. He had lost his invested money. Alexander K. fell for post-payment fraud, and as a rule no longer has any way to get his money back. Could Alexander K. have prevented this from happening? He received an unsolicited telephone call from a company that wanted to sell him shares. Companies are forbidden from making unsolicited approaches! He ought to have hung up straight away.

Susanne P. was called by a broker and then as a result purchased units in a gold mine in South America for EUR 5,000. After the transfer was made, the broker was suddenly no longer contactable. After two years another company contacted her and informed her that they were trying to help aggrieved investors. They said that they would get the invested money back. For this assistance Susanne P. would have to Only pay EUR 800 in fees. Susanne P. transferred EUR 800 in the hope that she would get the EUR 5,000 that she had already invested back.

What happened? Susanne P. not only lost the EUR 5,000 that she had invested, but also in addition the EUR 800 that she paid in subsequently. Could Susanne P. have prevented this from happening? She received an unsolicited telephone call from a broker that wanted to sell her units. Brokers are forbidden from making unsolicited contact to people! She should have hung up straight away.

Investment on Approval

You should first of all invest small amounts? This is investment on approval – caution, fraud!

Be careful – by investing several small amounts dubious providers want to entice you to conduct transactions. As soon as you invest more money, then such entities never get in touch again and your money is gone.

Michael L. has been contacted by a financial adviser, who is offering to invest small amounts on his behalf in unknown stocks. Michael L. was able to following the rising prices of the shares that he holds on the Internet. Or at least so it appeared. These price increases motivated him to invest a larger amount. Michael L. made a larger investment. Once he had transferred the money, the financial adviser could no longer be contacted. His money had disappeared.

What happened? Michael L. lost his entire investment. Could Michael L. have prevented this from happening? He received an unsolicited telephone call from a broker who wanted to sell him shares. Companies are forbidden from contacting people! He ought to have hung up straight away.

Fabian G. becomes aware of an online broker through an advert on the Internet, which offers to invest in shares of an emerging company for him. Fabian G. struggles to find any information about this company, but the opportunity sounds too attractive to reject it out of hand. First of all he invests smaller amounts, and also already receives the small profits paid out. One day Fabian G. is however unable to contact the broker and is also no longer able to get the capital that he has invested back.

Clone Firms

The using of “clone firms” is a popular method of committing fraud. It involves so-called “clone firms” or “clone individuals” falsely claiming to be a company that is authorised to conduct business, as a way of gaining the customer’s confidence. They use the name of a legitimately existing and authorised company with a fraudulent intention (often they claim to be insurance brokers), and pretend to be acting on behalf of that company. The websites of such companies are often elaborately designed and primarily offer asset management, asset optimisation or investment opportunities. However, these companies are not actually authorised to conduct such business.

You are therefore advised to carefully check the precise authorisation that the company holds (what is the company allowed to offer?), check the contact details provided against those for example in the Company Database on this website, or to find out information from the competent authority for the supervision of the “cloned” company. Unsolicited communications, known as “cold calling”, is forbidden and should be reported.

Furthermore, please also read the warning issued by the Financial Conduct Authority (FCA).

Be informed and be critical!

Phishing

You should be particularly careful on the Internet – fraudsters can empty your bank account!

The perpetrators first of all get hold of the access details to your bank account. This is often done using “Phishing-Mails”, which request you to enter your account information through a faked website. Alternatively, your computer is infected with a virus, which secretly logs access data in the background from online banking sessions. This allows transfers to be made from other accounts.

Your bank will never send you e-mails requesting you to enter your log-in details on another website. You should delete these e-mails without replying to them, or following the instructions contained in them. Never share sensitive information or passwords!

Pyramid schemes (also known as: “snowball schemes”)

In a pyramid scheme you are supposed to invest an initial amount as well as also finding new investors at the same time, who should also pay in an initial amount. You are promised that you will receive a commission for the investors that you attract. However, the contributions paid in are not invested, unlike what the company had agreed. The system collapses as soon as it is no longer possible to find new investors, and you lost the capital that you invested. Don’t get involved, not only can you lose your capital, but you may make yourself liable for prosecution!

Maria H. learns about the possibility from a friend from earlier times to participate in an “ultra-safe” investment project: all she has to do is to invest EUR 100 and convince other contacts to also invest. The more people she “recruits”, the higher her profit will be. Eventually such Systems collapse because it is no longer possible to find more investors. Maria H. loses her money and may also make herself liable for prosecution.

The methods involved in Multi-Level-Marketing (MLM) or networking marketing differ from those in pyramid schemes. They also, however, use “sub-affiliates” and often contain complicatedly designed profit systems. However, they do have actual investments in real products. Whether they actual invest as promised, or whether it is a pyramid scheme, in which you may also make yourself criminally liable by participating, is often difficult for the investor to identify. Therefore the utmost caution is also urged to be take in such network marketing structures, particularly since providers of pyramid schemes make particular efforts to create the illusion of investments actually being made.

Lucrative secondary occupation as a “Financial Agent”?

In order to transfer money received from various forms of fraud onwards, fraudsters also look for “financial agents” through online offerings, who should open accounts for them, or place their own private accounts at their disposal. A frequently stated reason is the pretence of difficulties in making payments to foreign companies. The job of such a “financial agent” is to withdraw money that is received and then to transfer it onwards to a foreign country. Noticeably high earnings are a particular warning sign.

If you are lured in as a “financial agent”, the risk exists that you make yourself guilty of being an accessory to money laundering, with is a criminally punishable offence, and one that may also have consequences under administrative penal law.

Therefore, to summarise:

  • If something sounds too good to be true, then it probably isn’t true!
  • Do not be tempted by sales calls over the telephone, terminate unwanted telephone calls that are trying to approach you to do business immediately!
  • Be informed and be critical!
  • Contact the FMA, if you are in any doubt or have questions about providers!