Are you investing with a fraudster? Tips for protecting your money

This week is International Fraud Awareness Week (14-20 November), a time when organisations from around the world pledge to increase fraud awareness in their workplaces and communities. For investors, the campaign serves as a stark reminder of the many dangers that exist, and the importance of remaining vigilant when it comes to protecting your money.

Unfortunately, there are many different types of scams and scamsters around, but they have one common goal – to cheat you out of your money. From Ponzi schemes, or pyramids, to online swindles, the myriad of new scams and their increasing complexity makes them difficult to identify.

The reality is that you never know if or when you will get caught out, but scamsters always try their luck. While it can be difficult to spot a bad apple, navigating safely and consistently through the various “opportunities” starts with always erring on the side of caution. Here are some pointers to keep in mind:

1. If it’s too good to be true, it probably is. While this isn’t a new concept, it almost invariably turns out to be right. If investors seem to be making impossibly high profits in a new investment, it probably means there is also scope for big losses, so tread with caution and watch how things unfold before you commit your own money. 

Let’s look at local Mirror Trading International (MTI) as an example, which was declared 2020’s biggest global crypto investment scam by data firm Chainalysis. MTI’s investors once enjoyed fantastic returns, which were allegedly due to super artificial intelligence, but now the CEO of MTI can’t be found, while investors wait in hope for any money to be recovered, in the wake of MTI’s liquidation.

2. Do your due diligence. Knowing who you are investing with at the outset is always the better course of action. Relying on minimal information, word of mouth or gut feel won’t necessarily get you scammed, but doing your due diligence is a safety net you should put in place. MTI didn’t have a registered license to trade, yet their publicity encouraged investors to keep piling in. 

Many companies are using WhatsApp for marketing, but fake news and false investment promises can easily spread this way, which is why it’s so important to double check who you are considering investing with, no matter what platform or type of investment you’re being offered. A conversation upon application shouldn’t be enough to persuade you; neither should reports of glowing returns with little to back them up. 

Go on to the website of the company that wants you to invest. If there is no website, that should be your first alarm bell. If there is a website, call the contact number to validate the information and who you have been in contact with. If it’s a financial services company approaching you, they should be registered with the Financial Sector Conduct Authority (FSCA). Look them up on the FSCA’s website to validate the company and their FSP number. 

3. What do they want from you before you invest? There should be a process involved in investing. It is true that simple, streamlined processes exist to invest online, but generally there needs to be some form of paperwork, even if digital, to confirm your investment. 

Be cautious of paying over money until you fully understand where it’s going. Consider Africrypt, another crypto scam out of South Africa that asked its users to deposit money. These funds were used to purchase bitcoins, and earlier this year some 69,000 bitcoins, valued at $3.6 billion had accumulated. These were promptly stolen and hidden in untraceable bitcoin pools, after the company was allegedly hacked. 

Working with a reputable investment firm is likely to require certain formalities. For example, at M&G Investments, you cannot invest in any of our funds without completing an application form (whether online or a physical form) and providing us with the relevant supporting documents. 

Keeping ahead of fraud is the only way to stay safe. Be conscious of what you click on and don’t rush into anything before you have double checked that it makes sense to invest. You can assume fraud is out there – it’s just up to you how easily it can impact your finances. Ensure your cyber security is up to scratch and that you patiently consider any investment. A qualified financial adviser will be able to help you separate good investments from fraudulent schemes.

For more information, please feel free to contact our Client Services Team on 0860 105 775 or email us at info@mandg.co.za.