Investment Scams: How to spot them.

In recent years investment scams have run rampant and the Financial Services Conduct Authority(FSCA) have had their hands full with ponzi schemes specifically in the Crypto market. These entities pop up out of nowhere and become a conversation around the braai- you always know a guy who has invested an amount and “made a ton of money”.

This usually doesn’t last too long, and before you know it, they disappear without a trace and with your hard-earned money. Here are a few tips on how to identify these investment scams.

  • What are you investing in?

It seems pretty obvious but an investor’s judgment gets clouded by the promise on returns without doing research on what you actually buy in to. Make sure the proposed assets actually exist and that proof can be provided. The proposal and the actual nature of the assets should line up.

  • What are they promising?

Normally these type of scams promise a massive return on your investment and they will probably not explain the risks involved. As an example, a recent Crypto scheme offered returns close to 20% every 6 months as well as annual pay outs. These type of returns and structures are highly unlikely and close to impossible but seems great to the desperate and greedy.

  • Is the company registered with the FSCA?

All financial institutions that give advice on Investments must be registered as a Financial Services Provider(FSP) at the FSCA and all representatives must be licenced to give advice. This means that the company has an FSP number and a licence certificate clearly visible at their business premises. FSP numbers and representatives can also be verified on the FSCA’s website at www.fsca.co.za.

  • Does the company require compliance documentation?

All registered FSP’s have to comply with the Financial Intelligence Centre Act. This means that they need to know who their client is and must comply with international money laundering standards.

This means that they will ask for FICA documentation before a transaction is done. This includes ID, proof of bank account and proof of address. They will also need to know the source of the funds that will be invested. This ensures that business is done with a real person and that the investment is not simply made to evade taxes or hide the origin of funds.

  • Use common sense.

Reputable entities will always have a business premises and a website where you can learn more about them and their services. Always Google the entity and read comments and reviews from other individuals and investors, usually you would read about investors not being able to make withdrawals. It will never hurt to ask your Wealth Manager for an informed opinion.

The old saying goes, “If it seems to good to be true, it probably is”.

Ruvan J Grobler

Photo credit: Anna Tarazevich from Pexels

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