- There has been a sharp rise in cases of investors being defrauded with a promise of attractive returns in UK
- The plunge of interest rates to rock bottom levels, due to the coronavirus crisis led many investors to fraudsters offering high rates of interest
- This time around the organised criminals have a much greater degree of ruthlessness and complexity in their methods
British private investors have been defrauded by as much as £4 million in the last few months by organised criminal groups in the country, posing as genuine firms and promising attractive returns. The current dearth of investment opportunities in the country has been forcing many unsuspecting investors to fall prey to such fraudsters. While investors have been advised to be vigilant before entrusting their hard-earned money to anyone, the increasing sophistication of methods being employed by these fraudsters makes it very difficult to distinguish them from real companies. The Investment Association, the industry body of investment firms representing nearly 250 fund managers in the United Kingdom, which has nearly £7.7 trillion of funds under management, has expressed its deep concern over that, as many of the genuine employees’ e-mail addresses and contacts of its members, investment firms are being impersonated to defraud investors, making them the subject of client dismay. The association has stated that till now they have reported nearly 300 such cases to the authorities this year, with most of them occurring during the lockdown period.
The highly panicked and weakened investment climate is helping these fraudsters
At the beginning of the year 2020, the Bank of England had reduced its interest rates to record lows, to promote business activities in the country marred by Brexit and then months later to an all-time low due to the coronavirus pandemic. However, during the lockdown, the investment climate in the country became really bad as the business activity levels across almost all industries came to a standstill despite the interest rates hovering at a record low of 0.1 per cent. The stock markets had also traced bottoms, with most of the mutual funds and other investment vehicles also trading at highly discounted prices.
For investors who derive much of their earnings from investments or for investors who had the opportunity to pull out money from the stock markets just before they crashed during the mid-week of March were now looking for safe debt instruments to invest in. This increase in demand for debt products during the lockdown crisis certainly led to many fraudsters, sitting on the fence to take advantage of the opportunity and exploit investors anxiety by selling fake bonds and other fixed-income products. Now even as more than two months have passed since the major lockdown was eased, but the investment climate in the country is far from improved. Interest rates are still at historic lows, and the government is rolling out grants to protect many businesses in the country from going bust and making all efforts of protecting many people from going unemployed. At this point of time, it is very difficult to imagine if there will be many businesses in the country that will post any growth in their revenues compared to reporting periods prior to March 2020, to create a good investment avenue.
The various methods criminals are using to trap unsuspecting investors
The method employed by fraudsters are some of the most complicated and often employ indirect advertising to attract potential investors. While attaching links on Google and Facebook are common methods, creating fake comparison websites and cloning websites of genuine investment firms are the more sophisticated methods that are being witnessed lately.
One of the more dangerous trends that are gaining notoriety lately is fake call centres that impersonate genuine staff members of actual companies and harvest personal data of unsuspecting clients. This data is then either sold off to other fraudsters or used to steal funds from customer accounts, who would come to know of the fraud much later when they meet the staff of the businesses which they thought they had spoken to earlier.
The chief executive of Investment Association while speaking on the damage the fraudsters have already caused, stated that this time around the organized criminals have a much greater degree of ruthlessness and complexity in their methods, further stating that it could not have come at a much worse time when the entire investment community in the country is reeling under a state of great uncertainty. However, he stated that the association would work closely with police and regulatory authorities to unearth these scams restore the credibility of the industry.
Things investors should be vigilant about to identify potential fraud
Investors should also be able to identify such unscrupulous people and criminal gangs from targeting them. The Financial Conducts Authority (FCA) has a dedicated Live scam page that gives potential investors information and advice to identify such fraudulent investment avenues and avoid them appropriately. Other than that, there are certain general precautions like if some investment avenue is offering returns that are way too high, then there is a reasonable ground to suspect that it is a scam. If a company is giving you a bank detail which is not in the name as the company, then it could be a case of clones investment management firm, and if a cold caller puts pressure to invest with a certain time frame, it is also often regarded as a red flag, meaning that the caller or its organisations may be engaged in an unscrupulous activity. FCA has also said that whenever an investor receives such calls or communication, they should immediately inform the authorities so that appropriate action may be instituted to check the spread of these scams.
The current period of economic uncertainty has made the investment climate in the country much more treacherous. The increasing threat of fraudsters is only adding to the uncertainty and risk levels being faced by potential investors. It is imperative that appropriate action is taken by the authorities so that the confidence of the general public on the financial markets of the country do not deteriorate. Investors on their part should be extra cautions during these difficult times, as their susceptibility to falling for such fraud is the highest during the period when they need to protect their investments and savings the most.
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