The current economic situation, with job losses, low interest rates and poor market performance, has created the perfect opportunity for scamsters to promote dodgy investment deals to try and lure unsuspecting victims.
To tell us more about investment scams, I am joined by Brandon Topham, director of investigations at the Financial Sector Conduct Authority. I asked him the following questions:
- Are you seeing an increase in investment scams as a result of COVID-19 and lockdown?
- What are some of the more common scams you are coming across?
- What warning signs should people look for?
- Is there any chance of getting your money back from these scamsters?
Tips to help you identify a scam
- They use concepts that are vaguely familiar and where there has been publicity about large profits – such as forex trading, fintech or Bitcoin. As most people are not aware of how these work, it is easy for the fraudsters to use big words to sound authentic, with investors not having enough knowledge to ask more technical questions.
- They all claim to be “low-risk” opportunities offering higher-than-average returns which they claim are virtually guaranteed. In South Africa, the risk-free rate is based on interest paid by a bank deposit, so any rate higher than that assumes some form of risk. If someone is offering you a guaranteed 20% “low-risk” return, there is risk being taken. In most of these cases, the risk is that you’re going to lose all your money!
- These scams are often run through word of mouth and testimonials of individuals who claim to have made a lot of money. Don’t believe everything you hear or read, especially on social media. Testimonials can be invented or paid for. While some people may have received a return, these do not come from the investment itself, but from money taken from new investors in a classic pyramid structure.
- They are not registered with the FSCA. Unfortunately, recent scams have shown that fraudsters may use fraudulent FSP registration numbers or use a valid licence to promote an unlicenced division of the business. If you want to confirm the authenticity of a licence number, contact the FSCA directly and ask them if the licence relates to the specific investment they are trying to sell.