Online investment scams: how not to be a victim

It’s late, you’re scrolling through Instagram when you should be turning off the lights and going to sleep, but something catches your eye. “Do you want to double your money in days?” The post looks legitimate and there’s even a swish video with a celebrity endorsing it.

Before you click on it, consider that it is very likely to be part of an elaborate scam. Such “get rich quick” advertisements are honed by fraudsters to promise high returns, dressed up with eye-catching images of luxury watches and cars to lure victims.

In the past, investment frauds typically focused on pension scams and older investors targeted via cold calls, but scams are increasingly moving online and growing more sophisticated — and the authorities are finding it difficult to keep up. FT Money explores the threat posed by online criminals and how investors can better protect themselves.

Runaway growth

Charles Randell, chair of the Financial Conduct Authority, said last month that financial crime, specifically fraud against individuals has “reached epidemic proportions”. One of the most damaging financial crimes is investment fraud, he added, where people are often scammed out of their life savings.

In the first six months of this year, across all categories of financial fraud, a total of £207.5m was stolen from almost 60,000 people, according to UK Finance, an industry body.

The great majority of these fraud cases are closed without any suspect being caught, according to data crunched by solicitors Hickman and Rose, which looked at the Home Office’s “Crime Outcomes in England and Wales” report for the year to March 2019. Out of 693,418 reported fraud cases only 5,997 resulted in a charge or a summons to court. That’s just under one per cent.

“Financial investment fraud is a large and growing area of criminal activity,” says Daniel Machover, head of civil law at Hickman and Rose. “While some of these crimes may be committed by sophisticated gangs targeting large institutions, much of it is focused on smaller, private investors.”

“Unfortunately for these smaller investors, the police response to any complaint of being defrauded is likely to be disappointing,” Mr Machover says. “Many police forces do not have the expertise or resources to deal effectively with modern fraud.”

This impression of hard-pressed police forces unable to deal adequately with a growing fraud casebook was reinforced in April when Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services, a police watchdog, said some police forces had been actively seeking reasons to drop investigations into fraud and found an “inconsistent” approach to policing fraud in England and Wales. The report found that some officers were looking for reasons to drop inquiries because fraud does not “bang, bleed or shout”.

The problem, say experts, is that fraud investigations take much longer than most other criminal investigations. The average length of time from reporting to charging for fraud offences was 514 days compared to just 50 days for theft offences, according to the Police Foundation, the UK’s policing think-tank.

Sophisticated swindlers

What makes this type of fraud particularly tough to investigate is the level of detail fraudsters use to impersonate trusted professionals. Often they will set up cloned websites or social media accounts to draw in unsuspecting consumers, says Tom Selby, senior analyst at AJ Bell. Scammers are also known to send out paperwork with a legitimate return address, to add a layer of credibility to their deceit.

“Financial fraud in the UK is mutating, with the number of victims of older-style ‘pension liberation’ scams dropping in recent years . . . [but] as pensions-based scam reports have fallen, the number of people falling prey to scams focused on their investments has continued to rise,” says Mr Selby. “This might reflect the fact that more people are now reporting being scammed to the relevant authorities, or it could be because fraudsters have shifted their focus to investment-based schemes.”

Investment scams typically involve a fraudster persuading a potential investor to part with money for fictitious funds or a fake investment in assets such as gold, wine, forestry schemes, carbon credits or land banks. For example, a “land banking” scheme might see investors enticed into buying a plot of land often in a far-flung location, on the promise of soaring values once planning permission is granted. Yet such licences are seldom given and investors are left holding worthless assets.

According to the latest UK Finance figures, in the first six months of 2019 losses incurred as a result of investment scams rose by 108 per cent compared with the first half of the previous year, from £20.8m to £43.4m. Of the total stolen, only 7 per cent was returned to victims, who lost on average £12,200 each.

Investment scams are having an increasing impact on the total number of cases seen and the associated total losses, with growing reports of criminals impersonating private banks and investment firms. Katy Worobec, managing director of economic crime at UK Finance, says: “Victims may be cold-called by fraudsters while others have left their details on clone sites during online searches for investment opportunities.”

Another area where criminals are getting better at duping their victims is romance scams, where fraudsters pretend to be in a relationship with someone before requesting money from them. UK Finance figures show that, between January and June, £8m was stolen this way, of which just 6 per cent was recovered.

Thousands of people contacted by investment fraudsters each year fail to report it due to embarrassment or confusion over who to turn to.

James Mills, managing director at Requite Solutions, a fraud investigation and prevention specialist which works to recover assets for fraud victims, says: “Fraudsters target the most vulnerable people in our society. The victims are chosen typically because they are experienced investors who might not be as savvy as they once were.”

Individuals can be unaware that they are victims of scams until months after they are first approached. This is because fraudsters may give victims confidence by sending them a modest early return on their investment, assuring them that further returns will arrive in years to come.

What to do

The first thing to do if you think you have been a victim of fraud is to report the incident to your bank as quickly as possible, says Mr Mills. Your bank will in turn contact the bank that received the stolen funds. If this happens rapidly enough then some of the funds in the criminal’s account could be frozen and recovered.

It is important to know what to say when you speak to your bank, she adds. Victims should demand to speak to a member of the fraud team and explain they have been a victim of bank transfer fraud or an authorised push payment scam.

After your bank, report the crime to the police, specifically to Action Fraud, the UK’s cyber crime and fraud reporting service. It will in turn send your case to the National Fraud Intelligence Bureau. If there is enough evidence, your case will be passed to a local police force.

Despite the disappointing figures for solving fraud cases, the police have made some high-profile arrests this year. Thirteen organised crime groups were dismantled by the Dedicated Card and Payment Crime Unit (DCPCU) in the first half of 2019 — double the number in the same period last year. The new head of the unit, Gary Robinson, warns that criminal gangs involved in trafficking guns and drugs are increasingly turning to online fraud. He calls for more action to prevent fraudsters using social media platforms to recruit young people as “money mules” — those willing to allow their accounts to be used to help launder the profits of crime.

The DCPCU, a specialist police unit funded by the banking and finance industry, targets the organised criminal gangs responsible for fraud. It is made up of officers from the City of London Police and the Metropolitan Police Service as well as support staff from UK Finance.

As well as reporting the crime to the police, fraud victims can take some action themselves. The first course of action is to find out if the financial institution (such as a bank, solicitors or accountants) systems were breached and if they did enough to protect clients.

“The vast majority of frauds and cyber crime offences that are reported to Action Fraud and police are not investigated,” says Mr Mills of Requite Solutions. A former senior Metropolitan Police detective, he says wealthy individuals are often left underserved when scammed, as their cases are frequently more complicated and therefore more time consuming for the police to address. Private companies such as Requite say they can help those in this predicament with services such as freezing assets, recovering funds and capturing critical evidence relevant to securing prosecutions.

Depending on the type of fraud, victims might also be able to apply to the High Court for an order to the third party bank to reveal details about the fraudulent account, such as who opened it. But this might not provide the answers you want, say experts, since fraudsters may have used a money mule to move the money.

Mr Machover of Hickman & Rose says in many cases victims are more likely to achieve swifter justice — and possibly recover some of their money — by launching their own legal action against alleged fraudsters in the civil courts.

Seeking redress

Banks are also being more flexible on fraud payouts. A voluntary code introduced by banks in May now protects customers cheated out of money in push payment scams, as long as they followed standards set out in the code, such as not ignoring warnings from the bank about making a new payment or setting up a new payee. Anyone proved to have been “grossly negligent” will not be reimbursed.

Jenny Ross, money editor at consumer association Which?, says: “The alarming rise of bank transfer fraud — with huge losses and little progress made returning money to victims — shows why the new banking code is so important and must deliver results. It promises better protection for fraud victims, and must lead to a significant increase in the amount of money being reimbursed to victims of these sophisticated scams.”

TSB is one of the few banks to offer further safeguards for victims: it says it will guarantee a refund to any of its 5.2m customers who are targeted by fraudsters.

The police and the finance industry want to boost efforts to prevent fraud happening in the first place as well as solve cases. A new system is likely to be fully adopted by Britain’s six biggest banks by the end of March next year, in which customers input the name of the person to whom they believe they are sending money. This is then cross-referenced with the account holder’s name.

Since September 14 new “strong customer authentication” rules require banks to ask for a Pin if a customer’s cumulative contactless payments exceed €100 or five consecutive contactless payments have been made.

Alistair Douglas, chief executive of credit experts TotallyMoney, said: “This is a welcome sign that more is being done to tackle instances of fraud across the UK. The adage ‘prevention is better than cure’ certainly applies here, for even though you can take action to rectify the damage and restore things to how they used to be, doing so is no small task and won’t happen overnight. The way is to stop it in its tracks.”