Helpful advice on how to avoid fraud and scams

This page reproduces a leaflet produced by the Financial Services Commission and is intended to help you avoid getting caught up in a scam or fraud.

Formed in 1989 the Financial Services Commission (FSC) is the local regulatory authority which is statutorily responsible for the licensing of financial services providers such as banks, investment services intermediaries, insurance providers, company and trust services providers. Another of the functions of the FSC is to; to protect the public against financial loss arising out of dishonesty, incompetence or malpractice.

It would be impossible to include infinite examples and advice on how to avoid scams and fraud as these often take many shapes and forms, in which scamsters use sophisticated props and hard sell techniques that trap even the financially experienced people. This is more so with the advent of the internet which has made it easier for the scamsters and fraudsters to achieve a global reach with access to a very wide market of people. Scams that catch people often look realistic and are presented professionally. They sometimes go to a lot of trouble to:

Print attractive documents and set up a business like website, Choose names that sound like reputable companies, Tell a persuasive story using the right jargon, Drop the names of people you know to build your trust.

Below you will find some helpful rules of thumb to help you determine a genuine offer from a scam or fraud.  We have also included two examples of the most frequently used techniques by scamsters and fraudsters to trap potential investors.

Remember – Always use common sense when assessing a financial services product you've been offered!

  1. Remember the Golden Rule – If its sounds too good to be true, it probably is! Don't fall for investments that promise spectacular profits or risk-free returns.  If the profits are going to be so spectacular, think why the sales person would not want you to share the information with your friends and family?   
  2. Identify the institution's financial regulator to ensure that it is a regulated entity and, if there is any doubt, take independent financial advice before proceeding any further.  Things to look out for are;
    i. Does the company you want to invest in exist, and does it have a licence to provide the financial services product they are trying to sell you?
    ii. Always try and obtain a prospectus of the firm or fact sheet on the product being offered as this will help you make an informed decision about whether to invest in the product in the first place.
    iii. Where is the company based and how did they obtain your details?
    iv. Be aware if it is not a recognised name or has a grandiose sounding name!  To obtain information on whether a Gibraltar financial services provider is licensed you can contact the Financial Services Commission, on telephone +350 200 40283 who will only be too happy to assist or alternatively you can consult our website.
  3. Take special care before entering into any commitments in respect of financial services, e.g. investment offers, banking, insurance and fiduciary services, advertised on the internet.  The global accessibility and availability of websites that the internet has brought about means that not all information and facilities will derive from authorised or licensed financial business.  The same can be said for offers received via e-mail.
  4. Many scams/frauds come from overseas, through unsolicited e-mails, surprise phone calls or even a visit.  If you did not ask for a visit a call or an unexpected e-mail think for a minute why you have been contacted and what details they know about you?  You should be careful not to hand over personal details such as your bank account and credit card numbers until you have established the credentials of who you are dealing with.
  5. If they offer you a product, how has he/she determined that the product or service is suitable for you?  What do they know about your plans for the present and the future?  Why do they think you might be interested in their product?
  6. Pressure tactics – Every scam/fraud gets dressed up as an opportunity so some offers say "don't miss out" and "act quickly" to make you hurry "before its too late."  They are really just trying to grab your money before you have a chance to properly understand the financial implications of the product.
  7. If you do not understand the financial details of the investment on offer, don't be afraid to ask your advisor to explain it again.  Don't be afraid to ask as many questions as you feel necessary to clear up any lingering doubts you may have as to the authenticity of the product.  And remember there is nothing wrong in seeking a second opinion!
  8. If you are offered a "deal" and you are told to keep it to yourself ask why?  This should ring alarm bells as to why you are the only person being offered the "deal".  Remember there is always some feature to make you feel like you've got an edge over other people.  It is likely the scamsters/fraudsters are trying to get an edge over you!
  9. More importantly, just because one person says they made a mint, doesn't mean you will too.  Never get yourself carried away by promises of making a "fast buck" and If you think you will, be sure in the knowledge that the scamsters/fraudsters will have the last laugh!
  10. Remember most scams/frauds say that financial success is easy and risk isn't a problem.  Even the best investors make mistakes and have to weather storms like market busts and economic recessions.

Pyramid Schemes and how they work.

Pyramid schemes are frauds structured in such a way as to promise very high returns, which are in fact, financed by the funds paid in by later investors. Investors pay into the scheme and they then recoup their money (and, it is claimed, make a profit) from investments made by people they themselves bring into the scheme. Typically each investor must recruit six others to show a return. Whilst this appears easy, as you can see from the diagram below a jurisdiction the size of Gibraltar would require only 6 levels of investors before some people would inevitably lose their money (and that is if every man, women and child invested!)  

Pyramid Scheme

High Pressure Sales—Boiler Room Operations

High pressure sales or Boiler room operations are a world where sales-men get rich quick by cold calling potential clients and pressuring them to buy shares in often unknown companies.

For example, it may sound obvious but if a stranger rings you out of the blue and tries to sell you some financial services opportunity in products you've probably never even heard of – BEWARE! They may be part of a financial scam that uses hard selling tactics to persuade you to buy the product. If they end up persuading you to buy, the scamsters will be the ones making off with your money. You may be left with a potentially worthless financial product.

The first time you hear from such firms may be by post or e-mail, or they might advertise their services over the internet. Once you get contacted or contact them the likely scenario is that they will start to flood you with calls offering you a great deal on shares, often in smaller companies that you may not have heard of or possibly other investments including futures, options or foreign exchange. The firm's sales force will probably sweeten, cajole, flatter, bully and even sometimes threaten you to take up their offer. If you have been sold shares you may have difficulty in getting the shares or their certificates. And should you try and sell them, you will not be able to determine if the price is fair, or in some cases you could find that the price is inexplicably lower.