The BBC series Scam City: Money, Mayhem and Maseratis reveals how investors have lost millions of pounds after falling for unregulated forex investment schemes, shared via WhatsApp group messages. Using a young affiliate marketer posed with expensive cars, designer shoes and impressive properties, one such scheme has lured in people who have lost sums of up to £4 million.
With the promise that GS3 Trades was regulated by the FCA, and with frontman Gurvin Singh Dyal showing photographic evidence of his lavish lifestyle, it is easy to see how investors could have been taken in. However, with no regulation and Gurvin living in a modest house in Ilford with his parents, the scam was eventually uncovered.
Social media and investment apps open up the world of investing to a greater number of people than ever before, including younger individuals who are brand new to investing. With this in mind, how can you be sure that you are putting your money into a genuine investment, rather than a scam?
Social media investing scams on the rise
Based on reports submitted to Action Fraud, victims of investment fraud where social media had a part to play lost over £63 million – with some approached directly, and others lured in by an advert. 45% of the reports in a 12-month period, which totalled over 5,000 individual cases, stated that they had been scammed into investing in cryptocurrency. 35.2% of these scam reports referenced Instagram, while 18.4% mentioned Facebook, with under-30s being the most affected.
It is the same age group that tends to be attracted to investment apps and cryptocurrency – both of which can come with high levels of risk and an approach that is described by many as more akin to gambling than to investing.
Time for individuals and the FCA to take action
Action Fraud has published a checklist for investors to follow to minimise the risk of being taken in by an investment scam. This list includes items such as using a financial advisor who is accredited by the FCA, avoiding opportunities that sound too good to be true, and acting with caution if contacted out of the blue about an opportunity.
The government’s draft Online Safety Bill, published in May, will also go some way to cracking down on online investment scams. This new regulatory framework “imposes a duty of care on digital service providers to moderate user-generated content in a way that prevents users from being exposed to illegal and/or harmful stuff online”. However, this will not include investment adverts, purely user-generated content.
The FCA has also outlined a tougher approach to tackling online investment fraud, working with social media firms after noting a 100% year-on-year increase in investment scams advertised online. The regulator’s aim is to encourage social media firms to comply with section 21 of the Financial Services and Markets Act 2000, which “prohibits the communication of invitations or inducements to engage in investment activity by persons other than those issued or approved by FCA authorised firms”.
Time will tell if these measures work in cracking down on online investment scams. In the meantime, investors should be wary of anything that seems too good to be true.
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