FOOL'S EYE VIEW
This Year's Favourite Investment Scams

By Jane Mack (TMFJane)
August 17, 2004

It's a sad fact of life that there seems to be one born every minute - a fool, that is. What is it about human nature that causes certain people to be attracted to "get rich quick" schemes which, with hindsight, were quite clearly too good to be true?

With investors keen to make a quick profit falling victim to an array of ever more sophisticated scams, the Government has come up with a list of the bogus 'investment opportunities' that have been prevalent in the last year - the sort that have turned far too many ordinary people into innocent suckers with depleted bank accounts.

The recent property boom has been a prime source of these scams and they top the government's league table. Scams to watch out for include:

Get Rich Quick Property Seminars

A number of seminars currently in operation offer the chance to learn "how to become a property millionaire". Typically, investors attend a free presentation and are told they can learn how to deal in property starting with little or no capital. Those who sign up typically pay thousands of pounds for the course.

Schemes vary, but may involve the opportunity to buy blocks of properties as buy-to-let investments, or buying development properties at a discount, which have yet to be built. The companies may also offer no deposit finance deals to get the investor started. While a few people may do quite well, the vast majority are losing thousands of pounds.

Buy-To-Let Renovation Schemes

Another variation is the buy-to-let property scheme, where companies offer to source, renovate and manage properties, claiming healthy returns will be made from rental income. In reality, the properties are often derelict and worth a fraction of the money paid for them, and the promised tenants are non-existent. Few investors see the returns they are led to expect.

Indeed, earlier this year a classic example of this type of company was closed down by the Department of Trade and Industry. Practical Property Portfolio 'sold' 4,000 homes to more than 1,000 investors in a bogus investment scheme that promised annual returns of 15%.In reality, most of the properties were boarded-up houses in derelict streets that were never refurbished or let but by the time the company was closed down, investors had parted with around £100 million. 

Agricultural Land

The company buys up farmland and subdivides it into individual plots suitable for a reasonably sized house. These plots are then sold to investors at many times the purchase price without planning consent. The company never says planning consent will be granted but issues copies of press releases and quotes that give the impression the Government is about to change its policy.

Invariably, people end up paying thousands for agricultural land with a value of a few hundred, which is then abandoned and neglected when planning permission is not forthcoming.

Not all scams involve property, of course, and the government is also warning people to beware of companies selling advertising space in a range of publications, claiming that part of the money raised will go to good causes or those offering the chance to make a profit from buying up other people's debts. Scammers are also particularly fond of targeting the compensation packages of retired or redundant staff as the victims are usually already looking for an investment opportunity, and are seen as easy prey.

Last year the Department of Trade and Industry wound up 371 companies - typically for fraudulent trading. But rip-off money-making schemes continue to resurface in a number of different guises so the DTI has issued a number of guidelines to enable consumers to avoid bogus 'investment opportunities'.

Tips on avoiding scams include:

• Only do business with companies you know and trust;
• Make sure you fully understand all the terms and conditions of any offer made to you;
• Take your time before you make any decision;
• Don't provide any financial or other personal information before you establish whether the company is legitimate;
• Understand and monitor your investments and ask frequent questions and map out your financial goals before you meet with a financial planner;
• Don't judge the credibility of a company or sales person by how 'professional' they or their promotional material or web site seems;
• Don't fall for high-pressure sales tactics;
• Don't let embarrassment or fear keep you from reporting fraud or abuse to the appropriate authorities; and
• Don't ever be afraid to ask questions. In fact, the more questions you ask, the better.

Anyone who thinks they have been the victim of a scam should contact the DTI, the Office of Fair Trading or their local Trading Standards Department. In the meantime, learn how to improve your investment knowledge and steer clear of anything that sounds too good to be true - it probably is.

More: Investments That Sound Too Good To Be True; The Perils of 'Low-Risk' Investments; Share Tips From Hell!