Robin Powell
By Robin Powell on August 03, 2022

Investment scams are on the increase. How to protect yourself?

A day later, she discovered her funds had gone. LinkedIn told her that the account of the person who originally contacted her no longer existed.
 
This trend, which has been noted by the FBI in the US, resulted recently in a warning to users by LinkedIn against sending money to people they do not know and responding to accounts with questionable work histories. (1)
 
Systematic and highly organised cryptocurrency scams like these are now rated by regulators as “by far” the top threat to investors, according to the North American Securities Administrators Association. (2)
 
But this explosion of fraud – in part due to social media and in part to the disruption caused by the pandemic – is not just happening in North America and is not confined to cryptocurrency.
 
In the UK, the Financial Conduct Authority recently warned of an 86% increase in screen-sharing scams over the past year (3). In these scams, the perpetrator uses screen-sharing software to take control of the victim’s computer, draining their bank accounts. Many of the victims originally clicked on an advertisement and were contacted by a person claiming to be a financial adviser.
 
The FCA noted that many people had become comfortable during the pandemic with using communication tools like Teams or Zoom, which allow users to share their screens with the other party (4).
 
“One of the main warning signs of a potential scam is if a firm or individual contacts you out of the blue. If you are asked to share your screen or provide remote access to your phone or computer, this is a warning sign it’s a scam,” the authority warned.
 
So sophisticated have these operations become, that attempts by users to retrieve their money can invite follow-up scams in which bogus operators offer the victims help in exchange for a fee.
 

Pandemic a cover for fraud

The pandemic itself has also provided a cover for fake operators to extract millions from retail investors.
 
In the US, the Securities and Exchange Commission recently announced an upsurge in fraudulent stock promotions by companies making false or misleading claims about purported COVID-related products such as temperature scanners, mobile apps and face masks (5).
 
One company issued a press release, saying it had a committed purchase order for rapid testing kits worth more than $600 million. The company’s stock price surged more than 400%, yet there was no such order.
 
So-called “pump-and-dump” schemes were also on the rise, the SEC noted. The fraudsters profit at the expense of unsuspecting retail investors by spreading false rumours to pump up a stock’s price to draw in investors, before dumping the stock to make a quick profit.
 

Why the upsurge and what to do about it?

Why this increase in scamming is happening now is put down by regulators to a variety of factors.
 
• First, the growth of social media — with its often lax privacy controls and lack of quality oversight — leaves people open to fraud.
 
• Second, the growing popularity of free apps that offer easy access to formerly sophisticated investments creates the opportunity.
 
• Third, the growing popularity of remote, digital communication has made many people more trusting of platforms like Zoom and Teams.
 
• Fourth, low expected returns from stocks and bonds, with prices until recently at historically high levels, have fanned a search for alternative sources of yield.
 
• Fifth, the isolation and loneliness created by the pandemic — particularly for older people — has left them more liable to offers from friendly and persuasive strangers with something to sell.
 
• Finally, the bad guys have become increasingly sophisticated in their methods and have shown an ability to fool even the most alert consumer.
 
As to how to protect yourself, the advice from experts is uniform (6):
 
• If an investment opportunity seems too good to be true, you should go nowhere near it. Offers of high return-low risk should set off alarm bells.
 
• Be wary of any unsolicited offer or unexpected contact, particularly if it comes at you via a social media platform.
 
• Tighten up your privacy controls on social media and protect yourself from identity theft. Do not share your screen with someone you have never met.
 
• Finally, and most importantly, always get independent financial advice from a registered professional before you invest.
 
This article is produced by us for Financial Advisers who may choose to share it with their clients. Timeline & Betafolio do not offer direct-to-consumer products.
 
Robin Powell is a journalist, author and editor of The Evidence-Based Investor.
 
References:
  1. https://www.cnbc.com/2022/06/17/fbi-says-fraud-on-linkedin-a-significant-threat-to-platform-and-consumers.html 
  2. https://www.cnbc.com/2022/01/11/crypto-scams-are-the-top-threat-to-investors-by-far-say-regulators.html 
  3. https://www.ftadviser.com/investments/2022/05/05/investors-lose-25mn-as-screen-share-scams-rise-86/ 
  4. https://www.fca.org.uk/scamsmart/screen-sharing-scams#:~:text=If%2520you%2520are%2520asked%2520to,sense%2520of%2520security%2520with%2520you
  5. https://www.sec.gov/oiea/investor-alerts-and-bulletins/watch-out-fake-covid-19-claims-when-investing-investor-alert 
  6. https://www.evidenceinvestor.com/how-to-avoid-investment-fraud-and-scams/ 
Published by Robin Powell August 3, 2022
Robin Powell