How To Spot An Investment Scam | 7 Key Signs

7 signs of an investment scam

'Guaranteed' returns
Bullying you for a phone number
Basic details just don't add up
Does it need to be regulated?
Are you allowed to invest?
How do you get your money out?
Any doubts, just stay out

Scam investments steal money and ruin lives. Boiler-room crooks are pushing at an open door right now, because interest rates on cash savings remain stuck at zero.

That means many people are rightly looking for other ways to grow their money. But few of us have the knowledge, experience or confidence to ask the right questions.

Legal but unscrupulous investments are also a growing problem, charging high mark-ups and fees for the chance to feel like a fool.

What to avoid? You'll find lots of guides to spotting an investment scam online. Most list these 3 warning signs:

Crooks contact you out of the blue by phone or email;
Scam investments promise high returns with low risk;
Safe investments are regulated by the financial authorities.

These 3 tips won't protect you however. Following them could in fact put your money at risk.

First, crooks today use online adverts and social media just as often as unsolicited 'cold calls'. Some scams also offer what can seem quite boring rates of return, running as low as 3% on some examples BullionVault has seen.

Finally, some schemes may in fact be registered and regulated by the financial authorities, but they operate beyond their permissions or simply take big chunks of investors' cash in outrageous fees.

Take for example London Capital & Finance (LCF).

All the hallmarks of a scam?

Based 50 miles outside London and launched in 2012, LCF changed its name four times in four years. It then replaced the accountants auditing its books twice in two years.

By then LCF was "technically insolvent" according to analysis by the Financial Times, because it owed its customers £10m more than it had in assets. Yet it still passed all 3 of those standard 'scam warning' tests, right up until it crashed in early 2019 with assets worth just 20% of the £236m ($307m) which 14,000 private investors had given it.

Cold calls? No, LCF employed a marketing company which "used a blitzkrieg of online ads" according to the London Evening Standard. Those adverts took people to what looked like genuine comparison sites from which – if LCF made a sale – the marketing company banked a 20% share of the investor's cash straightaway.

High returns for low risk? LCF promised up to 8% per year from 'mini-bonds' lending cash to hundreds of small businesses. Much higher than bank savings rates, that is only half what the UK stock market has returned annually over the last half-century. Gold bullion has risen 10.4% on average since the year 2000.

Approved by the financial regulator? Yes, LCF was authorised and regulated by the UK's Financial Conduct Authority (FCA). The government's own financial services compensation scheme, the FSCS (like the FDIC in the United States), even told LCF investors they were insured up to £50,000 ($65,000). But LCF was selling products that weren't regulated, so its customers weren't covered by FSCS.

Just as bad, following only those 3 tips could risk blocking you from perfectly legitimate investment opportunities.

Cold calls are always a bad sign. Hang up and do not go any further. But while no one regulates the housing market, everyone needs somewhere to live, and real estate can be a solid long-term investment.

Physical gold is not a financial product either, so it doesn't need financial regulation like stockmarket shares or bonds. Yet gold has been the best-performing major asset class so far this century for UK, Eurozone and US investors.

So, what warning signs should you look out for to avoid falling for an investment scam?

'Guaranteed' returns

It's not the rate of return but the promise or 'guarantee' which should ring alarm bells. Nothing is 100% safe in the financial markets, not even cash in the bank. That is why FCSC and FDIC insurance exists, so that savers can get back at least some of their money if their bank fails. Ignore any offers of 'assured profits'.

Bullying you for a phone number?

Never share you phone number simply to 'learn more'. If you can't get proper information about an investment without giving your phone number, forget it. So-called 'boiler rooms' are run by smooth-talking salespeople who lie for a living. They'll flatter, confuse and then rush you.

So, beware of offers to 'Book a free consultation' or 'Request a callback'. Safest of all, check out the details online first. There's no reason for a legitimate opportunity not to explain itself, in full, in writing.

Of course, you must be able to talk to someone when you wish. BullionVault for instance has a fully trained Client Services team ready to help by phone, email or live chat. But they're waiting to assist you, and they will never call you to push gold, silver or platinum.

Check basic details

Does the 'About Us' page actually tell you anything? Do weblinks to official-looking groups or sites actually work? Are their independent reviews you can see? What is the company's name? How long has it been in business? Who are the people behind it? Never rely on what the promoters tell you. Check key facts elsewhere on the web. In particular, look at anything official, such as company number, tax registration details, financial regulation. Are these basic details for real?

Does it need to be regulated?

Being regulated doesn't mean an investment can't scam you. But almost anything involving debt – such as a loan or a bond, paying you a rate of interest – should run under some kind of financial regulation (the FCA in the UK or SEC in the US).

So too should any stock or shares in a business you might be offered, because it's illegal to sell shares in a private business to the general public. That includes 'crowd funding'. The platform giving you information should be registered and regulated by the financial authorities. Use the Investor.gov site in the US or the FCA register in the UK to confirm.

Most physical assets don't fall under financial regulation. That includes gold bullion, fine wine or real estate, because they're already governed by simple and well-understood property law, such as Sale of Goods in the UK for instance. Scroll down to see BullionVault's 'Guide to gold scams' below for more on this.

Are you allowed to invest?

Some bond investments are classed as 'unregulated' (sometimes called 'mini-bonds' in the UK), but they should only sell to professional or very wealthy investors who agree that they understand the risk of losing everything. Can you afford to?

Alongside 'sophisticated' and 'high-net worth' investors, you might be invited to sign something saying you are "self certified restricted investor". Be careful! Lying about your circumstances to get around the rules risks doing a scammer's work for them.

Look for the exits before you go in

Too many people rush into buying an investment before asking the most important question: How will you get your money out?

Whatever you're researching, find out if you can sell when you choose. Is there a ready market outside the company you're buying from? If not, you risk being stuck with an asset no one else wants – and when you can't sell an investment, its value is zero.

Any doubts, stay out

If anything doesn't stack up, or you feel at all rushed to make a decision, just stop. Take a breath, walk away. Missing out on a hot opportunity might be frustrating, but would you rather lose all your money to a crook? That's what you risk if you let yourself be rushed. No genuine, long-term opportunity needs a decision before you have done all your research and you are ready to choose for yourself.

5 gold scams to beware

Gold's long history as the ultimate prize makes it a popular choice for investment scams. It also helps crooks act like an insider, even when they know nothing, because few people outside the gold market understand how it works.

These 5 common gold scams all try to bamboozle you with jargon. Then, when you're too confused to ask questions, they rush you to make a decision.

Bait and switch

A classic investment scam, this sees the victim hooked with one product but then sold a much worse deal. The scammer might advertise a well-known gold coin at a fair price. But then, when you're on the phone, they suddenly switch to talking about a very 'rare' coin you can get if you hurry. Don't fall for this 'upgrade'. Take your time and check the facts elsewhere.

Discount to spot

Why would anyone sell you something for much less than it's worth? The very cheapest gold comes in large bars approved by bullion trade body the LBMA. Sometimes called the spot price, this market also sets a benchmark price each day, known as the London Fix or London price. Legal gold never sells below 'spot', let alone at a discount of 10% or 20% as some promoters claim.

Swiss procedure

You get an email, out of the blue, asking you to help arrange a huge gold deal. It's worth many billions of dollars, and the buyer (or seller) wants you to help because...well, why? No one wanting to trade gold needs your help, whether or not they're mining gold in Africa or south-east Asia. Mark as 'junk' any email talking about "release payments" or "5,000 metric tonnes" or "Swiss procedure". It's nonsense.

Autobahn gold

A long-running scam on Germany's highways, this has spread across Europe and now the US. Someone stops you in the street. They must get to the hospital or airport urgently, but they've run out of gas and money! Can you help? How about they give you this solid gold necklace or these solid gold bracelets in return for some cash? But solid brass is all you will get. Victims say they feel foolish and greedy the very moment the con-artist runs off.

The empty safe

Because high-value goods need secure storage, this investment scam happens all too often in gold, fine wine and diamonds. Instead of using your money to buy and look after an asset for you, the scammer spends your cash on his own investments, or wastes it on holidays and high living.

Whenever you buy an asset in somebody else's care, your biggest risk is that it doesn't exist. BullionVault was built to help you avoid this risk in gold, because it proves that:

all client property exists, in full, inside specialist third-party;
all client property is high-grade Good Delivery bullion;
client property does not appear on the company's balance sheet;
your ownership is stated plainly and clearly in its Terms & Conditions.

Investing in gold shouldn't be complex or confusing. Nor should you rush to grab a 'special offer' you don't understand. Just stop, take a breath, and ask yourself:

Really? Does this thing stack up?

Investment scam FAQs

How do I know if I’m being scammed?

If you are worried a financial investment might be a scam, then a nagging sense of concern or mistrust is a red flag you shouldn't ignore. There are some key hallmarks to look out for, such as repeated and aggressive phone calls, instructions to act quickly or 'miss out', the offer of ‘guaranteed returns’ – something that no investment can ever promise – as well as offering high returns for low risk.

Before entering into any investment, independently verify key business information such as the registered address, company number and tax registration details. Just as importantly, check how you can get your money out when you need to.

Stocks, shares and almost anything involving debt that pays interest – such as loans or bonds – will require some form of financial regulation. However, this may not stop you being charged legal but excessively high fees. Also, make certain that you are allowed to invest. Some complex and high-risk products are restricted and available only to professional or wealthier investors. Never sign anything saying that you understand the risks if you don't.

Physical assets such as gold bullion, in contrast, don’t require financial regulation, because they are governed by simple and well-understood property law, such as Sale of Goods in the UK. But again, and as with fine wine or real estate 'opportunities', always conduct your own due diligence and check membership of industry bodies such, as the LBMA for the precious metals industry.

What are the latest scams to look out for?

There will always be new scams aimed at convincing people to invest money in fraudulent schemes. For example, common scams include ‘boiler room’ fraud, in which fake stockbrokers cold call people and smooth talk or pressure them to invest in non-existent assets or products with an exaggerated value.

It is important to be able to spot the signs of a scam. These include the offer of ‘guaranteed returns’ – something that no investment can ever promise – as well as high returns for low risk. Before entering into any investment, independently review key business information such as the registered address, company number and tax registration details and check how you can get your money out of the asset if needed.

How do investment scams work?

An investment scam is the offer of fake or exaggerated financial return for investing in a product that in reality doesn’t exist or has a much lower value than advertised. There are different types of investment scams, including ‘boiler room’ scams, offshore scams and clone scams, however, they all typically include selling stocks, shares and bonds or even physical products like gold bullion, under the guise of a low-risk, high-reward investment.

It is important to be able to spot the common signs of a scam. These include the offer of ‘guaranteed returns’ – something that no investment can ever promise – as well as requesting a phone number in exchange for information about the investment. If you’re worried you may be being scammed, independently review key business information such as the registered address, company number and tax registration details and check how you can get your money out if needed.

What are the types of investment scams?

An investment scam is the offer of fake or exaggerated financial return for investing in a product that doesn’t exist or has low value. Common investment scams include ‘boiler room’ scams, offshore scams and clone scams, and typically include selling stocks, shares and bonds or even physical products like gold bullion, under the guise of a low-risk, high-reward investment.

New investment scams appear every day, so it is important to be able to spot the common signs. These include the offer of ‘guaranteed returns’ – something that no investment can ever promise – as well as requesting a phone number in exchange for more information.

How do you know if an investment is legit?

It can be difficult to tell legitimate investment opportunities from scams, so it is important to know how to research investment opportunities. Legitimate investments can be authenticated by independently researching key business information, such as the registered address, company number and tax registration details. You should also search for case studies or authenticated reviews and check how you can get your money out of the asset if needed.

Investment scams typically have common hallmarks, including cold calling, the offer of ‘guaranteed returns’ – that no investment can ever offer – as well as high returns for low risk.

How do you avoid investment scams?

It is important to be able to spot fraudulent investments in order to avoid being scammed. Common signs of investment scams include cold calling, the offer of ‘guaranteed returns’ – something that no investment can ever promise – as well as high returns for low risk.

You can avoid getting scammed by checking the authenticity of an investment or product. Before entering into any investment, independently review key business information such as the company number and tax registration details and check how you can get your money out if needed.

Depending on the investment check whether it requires regulation. Bullion investments do not require Financial Conduct Authority (FCA) regulation, but you should only buy gold, silver or platinum produced by LBMA-approved refineries and stored in professional vaults.

Stocks, shares and almost anything involving debt (loans or bonds) that pays interest should be regulated by the Financial Conduct Authority (FCA). However, this alone doesn’t guarantee that you will not be ripped off and legitimately charged excessively high fees.