Investment fraud is surging due to the fact that immediately after the commercially crippling pandemic lockdown, the war in Ukraine has rapidly driven up the cost of living. The difficult commercial landscape where profits are rapidly dropping creates fertile ground for investment fraud where the target is initially promised unrealistic returns on their investment.
There are several approaches that fraudsters use, frequently the victims are persuaded that their actions have caused their losses.
Joanna Bailey, who heads the banking and financial fraud litigation department commented "fraudsters choose their victims carefully and the friendly conversation in the initial discussions between the fraudster and their victim is phrased to identify the target as a person with no association or understanding of how the of investment markets operate" Joanna also pointed out "once it has been established that the target is new to the investment market they are encouraged to invest. Trades initially appear to be successful. The victim is often flattered into thinking that they are making good decisions and often persuaded into changing their status to that of a professional trader and guided through the application by the fraudsters. This removes the safety net provided by the Regulators"
Here are some examples of common types of investment fraud currently perpetrated:
The victim is approached by the fraudster romantically, usually the first approach is through an online dating site and often conducted as a long- distance romance. The fraudster takes time to develop the relationship and feeds their victim with a web of lies about themselves. Once the victim truly believes that the romance is real, the victim now trusts the fraudster. The fraudster then may ask the target for large sums of money for an "emergency" such as medical bills due to an accident or funds to complete a lucrative business project.
Alternatively, the fraudster may encourage the victim to invest in an investment scheme that is actually a scam. Action Fraud suggests that the latest reports show that nearly £92 million has been lost through romance fraud in the past year.
Whilst the Regulators have tightened the rules relating to investment and are constantly reviewing the position in light of the new types of fraud; the scammers are adept at modifying their frauds. The fast moving Foreign Exchange (Forex) market has been a particular favourite for fraudsters for some time. As with many scams and frauds the initial contact is made through social media and the friendly "account manager" gains the victim's confidence and quantifies their lack of knowledge on how the investment market operates and the regulations that apply. The target is promised impossibly high returns on investment in "get rich quick" types of schemes. Many victims allow their account manager to take over their computer.
Usually the target is encouraged to make small investments initially which appear to be successful and make profits, the target is led to believe that money is accruing in their account. When the target decides that they would like to access the funds they believe to have built up, their account dramatically falls into loss.
Needless to say the victim is considerably alarmed, as not only have they lost their profit but their initial investment as well. At this point they are told that they can trade out of the losses if they make more investments. The pattern of small gains and dramatic losses is often maintained by the "account manager" until such time as the fraudster recognises that the target cannot access any more funds, whereupon they disappear leaving the victim financially ruined and not knowing what they can do to recover their lost funds.
This type of fraud involves social media platforms such as Tik Tok and Instagram; where "influencers", particularly celebrity influencers, are paid to promote an investment scam. The influencers may not have any knowledge that it is a scam or part in the scam; they just promote the investment without having made any enquiries into the validity of the schemes they are promoting. Novice investors recognise the celebrity and are swayed by their association with the schemes. Charles Randall, the former Chairman of the Financial Conduct Agency (FCA), believes that celebrity influences may have a legal case to answer.
"Professional" Investor fraud
Investment fraudsters employ many methods to distance themselves from the legal consequences of their scams and to deceive their targets. The Regulators oblige investment brokers to identify their investors as novice of professional traders.
Increasingly, dubious investment brokers are contacting individuals that had previously traded with them and inviting them to continue trading on a different more lucrative basis, elevated to the capacity of a professional trader. The novice investor is guided through an application form containing ambiguous questions framed in such a way that the person completing the form is unaware of the implications of the change of status and the fact that, as professional traders, they are compromising their position as consumers and the safety net provided by the Regulators for consumers is removed.
When the inevitable losses of profit occur the target is told that this is entirely due to their own decisions.
There are multiple regulatory agencies that issue guidance and warnings to potential investors, such as, pointing out that novice investors should establish that their investment broker is regulated and providing lists of brokerages that are suspect.
Giambrone & Partners banking and financial fraud litigation department has a well-earned reputation for developing strategies to assist our clients to recover their lost funds.
Joanna frequently leads the litigation against financial institutions involved in Forex/binary trading disputes, as well as cryptocurrency issues and regulatory investigations and has some considerable success in retrieving the funds lost in fraudulent investment schemes.
Joanna has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.
She is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.