Investment Scams: What’s the Difference between Fraud and Mis-Selling?

Published on: October 29, 2015

You’ve lost a considerable amount of money on an investment product that you were led to believe would perform well. It’s clear you deserve some kind of compensation. But have you been the victim of investment fraud, or have you been mis-sold a product that wasn’t suitable for your needs?

Investment scams are entirely different to mis-selling, and if you’re planning to claim for compensation, it’s important to know the difference between them.

Here’s a brief guide outlining the differences between the two, plus some fraudulent scam products to keep on the look-out for.

What is Investment Mis-Selling?

Investment mis-selling takes place in a financial institution such as a bank or broker. These companies are often authorised by the FCA and widely considered trustworthy. In fact, some organisations accused of mis-selling in the past have been some of the UK’s most well-known high street banks, such as Lloyds, Santander and Barclays.

Generally speaking, when purchasing an investment product, you should expect to be asked the following:

What is your attitude to risk?
What you would do if you lost money on your investment?
What experience do you have of investing in the past?

You should also be offered a range of alternative products, with the advantages and disadvantages outlined in full. If you weren’t asked these questions or provided with the right information, this could potentially mean you have been mis-sold an investment.

What is an Investment Scam?

Being scammed is very different to being mis-sold an investment product. Unlike genuine investment products (whether mis-sold or not), a scam has only one aim, and that’s to part you from your money. Unlike a genuine investment product, you won’t receive any return on your payment.

Scams come in many different forms. These include:

Pension loans and investments. This involves investing a portion of your pension funds in a supposed ‘investment product’, which promises great returns.
Government initiatives. It’s also not uncommon for investment scammers to claim to be getting in contact regarding a Government initiative. This serves to make the offer seem more legitimate, despite being illegal.
Investment in assets. It’s not uncommon to be presented with asset-based investments, such as diamonds, coins or even land.

How to spot a fraudster

Although some legitimate advisers have been heavily criticised in the past for using pressurised selling techniques to mis-sell investment products, ultimately their approach is very different to a scammer. Here’s some key things to be aware of:

Initial contact. Investment mis-selling generally occurs at a meeting with your financial establishment, which is likely to have been pre-arranged. However, scammers tend to use methods such as cold calling or blanket emailing to reach out to their victims.
FCA registered. A reliable company will be registered with the FCA. Unfortunately, this doesn’t protect you from mis-selling, even though regulations have become tighter recently. A scam company will not be registered with the FCA. Beware of clone companies that use another financial institution’s details to gain your trust – if they have cold called you, they are likely to be fraudulent.
Pressurised sales. Regrettably, some financial institutions still use pressurised sales techniques to encourage you to invest in their products. However, technically, they’re not meant to – and the FCA frowns heavily on such practices. A scammer will nearly always use pressurised selling techniques. It’s likely that they’ll offer you something that seems too good to be true, or something that’s only available for a short period of time.

Some famous scams

Below are just a few examples of well-known investment scams.

1. Graham Bradbury’s pyramid scheme. In 2014, under the guise of ‘Cherries Private Members Club’, Mr Bradbury managed to part members of his exclusive club with over half a million pounds. Although promoted, via his three websites, as running ‘schemes for the financial benefit of the members’ with ‘average returns of between 3% and 10% per month tax-free across our range of services’, the business was an elaborate scam. Mr Bradbury has since been given a 12 year bankruptcy restriction.

2. Vintage International Limited. A company offering wine investment services to its clients was found guilty of scamming; and when it went into voluntary insolvency in 2014, it owed over £1million in unfulfilled wine orders. Mr Ofosuhene Ofori-Duah was given a disqualification, preventing him from acting as a director for the next 9 years.

What to do if you’ve been scammed

Regrettably, it’s estimated that people in the UK lose over £200million to cold calling scammers each year. If you suspect that you’ve been scammed, it’s likely to be difficult to get your money back again. However, it’s important to report the incident to the FCA who will carry out the necessary investigations.

What to do if you’ve been scammed

If you are concerned whether you have been a victim of investment mis-selling, read our guide on Was I Mis-Sold My Investment? This outlines a list a list of questions you should answer to establish if you have been mis-sold.