Detecting investment scams and avoiding them

Detecting investment scams and avoiding them

NAV TL;DR

If you don’t have time to read through the whole article, you can check out our short version below.

  • Be cautious of investment schemes that claim to have low or no risk while promising attractive returns.
  • Verify if a firm is regulated to provide financial services through the MAS Financial Institutions Directory.
  • Always ask, check and confirm before committing to an investment.

Millions of dollars have been lost to scammers in recent years in Singapore. And the victims come from all walks of life including the educated and professionals.

Financial fraudsters often use complex and effective tactics to trick victims of their money. The proliferation of information technology (IT) devices such as smartphones, tablets and web-connected appliances has further exacerbated the situation and resulted in people being exposed to greater risk of falling prey to an investment scam.

The most significant and largest fraud that was reported recently is the Envy Global investment fraud. It managed to swindle investors into putting in more than S$1 billion into a bogus nickel trading scheme that promised attractive returns averaging 15% every 3 months.

Documents and videos were forged to show nickel trades but no investment in nickel actually took place. Instead, the investment funds were used to fund the perpetrator’s lavish lifestyle, amounting to S$2 million per month.

What was shocking is that many of the scam victims are professionals and prominent members of the financial and legal community.

Hence, it is important to understand how these scam incidents take place and learn from mistakes of past victims, so that you can avoid falling prey to fraudsters. Although some investment frauds may look like the real deal, being able to spot certain red flags will greatly reduce the possibility of you being taken in by these scammers. Here are 5 red flags to spot, to assist you in avoiding such scams.

Spotting Red Flags


1. Promises of high rates of returns

Financial fraudsters understand what appeals to people and investment scams often offer lucrative returns to lure investors in. Be wary of investments that guarantee a certain amount of returns or promises great returns. Always remember that higher returns often mean higher risk involved, and there is no such thing as a high profit investment with low or no risk involved.

Similarly, be wary of investment schemes that claim to guarantee or protect your capital while promising attractive returns.

Verify how the scheme can generate such high profits and find out what the risk is like of investments with similar returns. Remember that when you are doubtful, do not rush into investing. If an investment sounds too good to be true, it most likely is.

2. Referral commissions

Bona fide investment schemes generally do not offer commissions to investors for referrals. Investment frauds tend to provide such incentives to urge existing customers to bring in their friends and associates to widen their customer base in a short span of time.

3. Limited period only/ Limited opportunity offers

Pressure tactics are often used in scams to rush investors into making an investment commitment. Be suspicious of time-limited offers that require you to make a quick investment decision.

Always make sure that you take sufficient time to make an informed decision on an investment opportunity. If you are doubtful, it is be safer to walk away with your wallet intact rather than jump into a decision on the spur of the moment.

4. Fabricated experience and track records

Don’t be taken in by spectacular investment track records or claims of having long years of experience. Investment scams claim to be successful so that they can earn your trust and make you skip on verifying their credentials.

Some frauds may also make use of testimonials of “satisfied customers” to boost their credibility and reliability. However, it is advisable to approach such claims with scepticism, or even ignore them as you are unable to validate the authenticity of these testimonials. Do remember to assess investment opportunities based on known facts and verifiable information.

5. Claims to be regulated

Some investment scams even claim that they are regulated by relevant authorities in their attempt to trick unsuspecting members of the public.

Make sure to check if a firm is regulated to provide financial services through the Monetary Authority of Singapore (MAS) Financial Institutions Directory. The Financial Institutions Directory provides a list of financial institutions regulated by MAS and the regulated activities they are authorised to provide. The laws administered by MAS requires financial institutions to disclose information on investment products being recommended to consumers. These safeguards will not apply if you choose to deal with an unregulated company.

Below are investment scam examples designed for the “Beware! Investment Scams” campaign in 2017, conducted by the national financial education programme MoneySense and the Securities Investors Association Singapore (SIAS). These examples include the various red flags that are highlighted above.

Avoid investment scams

Avoid investment scams

Source: Monetary Authority of Singapore

3 steps to avoid scams


Avoid investment scams

1. Ask

Do not hesitate to ask as much as you need to fully understand the investment opportunity that is being presented. Be wary if the firm is unable to answer to your enquiries or avoids doing so.
Furthermore, even if they are answers provided by the firm, do not be so quick to believe all that you have been told. Make sure to verify on their various claims and answers.

2. Check

Next, check if the information provided by the company about itself is real and accurate. For instance, check their address, track record and business registration number.
Also, check on information provided by the company on its owners, directors, and management members, for example, their experience, qualification, etc.
Besides, check online (e.g. online forum) or the news if there are any complaints or negative comments about the firm, owners, directors, management, and the investment opportunity.

3. Confirm

Before you decide to invest, it is essential to confirm the credentials of the firm and any representatives by utilising the following available resources, which include:

  • Financial Institutions Directory - a list of firms regulated by MAS and the activities they are authorised to provide
  • Register of Representatives - a list of individuals who conduct activities regulated by MAS
  • Investor Alert List – the list includes persons unregulated by MAS who, based on information by MAS, may have been wrongly perceived as being licensed or authorised by MAS.

By familiarising yourself with the different red flags to potentially spot an investment fraud and arming yourself with relevant information, you will be able to better protect yourself from becoming victims of such scams.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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