Tackling investment scams
A significant proportion of our investigation and enforcement work is aimed at tackling the perpetrators of investment scams.
The actions we take include winding up companies in the public interest, disqualifying directors or restricting bankrupt individuals and referring criminality to prosecuting authorities. The investments vary widely by type - from land or diamonds to collectible coins or jatropha trees - but the underlying intent remains constant – parting the unwary from their hard earned cash.
Some scams, like the pyramid scheme which left investors over half a million pounds out of pocket and resulted in Graham Bradbury of Sheffield being handed down a 12 year bankruptcy restriction or the £1 million wine investment scam that led to a 9 year disqualification for Greenwich based director Mr Ofosuhene Ofori-Duah, come in and out of fashion. Some scams gain a foothold for a considerable time and others move with the times.
We have had many successes tackling land banking scams over several years, where unwary members of the public are sold almost worthless pieces of land with the promise of increased returns when planning permission is granted – planning permission which will never be agreed due to the nature or location of the land.
Others - like Denver Trading AG, and Denver Trading Ltd, that sold rare earth elements as investments, and were wound up in the public interest in August 2014; or Carbon Green Capital LLP and Agora Capital Ltd, that peddled worthless carbon credits to vulnerable and unsuspecting investors hoping for a return on their investment, and were wound up in October 2014 - are scams that have moved with the times to market newer commodities to potential investors.
How do they operate?
Investment scams often operate through ‘boiler rooms’. Previously, boiler room fraud was a term used to describe the high pressure, misleading telephone selling techniques by those carrying out share sale fraud. Investment scams now use the same methods, so the term ‘boiler room’ now describes the scammers’ sales techniques of promising potential investors extravagant (and ultimately unrealistic) returns in order to dupe individuals into parting with their cash.
Who falls prey to scams?
Although there are some instances where very elderly people have been pressured into investing, scams tend to target the over 55s, not because they are seen as vulnerable groups but because they are the ones who are more likely to have disposable income – their savings, lump sums and maybe even their pension pots – to invest.
Even though the old adage, “if it looks to good to be true, it probably is” still applies, it is not just inexperienced investors who fall prey to these schemes. Mis-selling and high pressure sales are what the scammers do for a living. They are very good at it, credible and convincing, and we have seen some highly sophisticated and experienced investors fall foul of the slick sales patter and glossy brochures.
People can also be targeted by more than one scam as lists of investors are a valuable commodity and are refined and then sold on from company to company.
Recently, potential investors have been looking for better returns on their capital. Promised returns from what sound like lucrative investments can be very attractive to those with a lump sum or pension fund struggling to grow. Scammers exploit people’s concerns for their future financial security by focusing their sales pitches on the far better returns that could be earned if money was invested with them.
What we are doing to combat investment scamming?
One of the key areas of our investigation and enforcement activities is to promote confidence in the UK market place by promoting the fair treatment of customers by businesses and individuals. When we tackle investment scams and the people behind them, we are helping to remove those scammers who reduce confidence in the business market place and cause harm to individuals’ financial and general wellbeing.
Since June 2007, 168 investment scams have been wound up in the public interest following action by the Insolvency Service. We have also investigated a number of other investment scams that have entered formal insolvency procedures and have so far disqualified 62 directors who ran those scams, for an average of 10 years each in order to prevent them from being able to control companies during the period of their disqualification. These lengthy bans reflect the seriousness of the conduct identified and the need to protect the public of those responsible.
Often, the records of the companies are not maintained and there may also be reluctance amongst those who have lost out to come forward during the investigative process. This means that the amounts quoted above are likely to be conservative and the true number of affected individuals and losses incurred are likely to be much higher.
The Insolvency Service is allowed two years following a company entering insolvency to commence disqualification action and our investigations into scam investments continue, therefore further winding up orders and director disqualifications will almost certainly follow.