The rise and rise of the scam merchants

Posted by TEBI on July 18, 2022

The rise and rise of the scam merchants



Around the world, investment scams are on the increase. The popularity of social media, the growth in digital platforms since the pandemic and the growing ease of trading are all contributing factors. No wonder global regulators are becoming alarmed.


It started with a LinkedIn post. A user, “Catherine’” was contacted by another LinkedIn user, connected with an existing contact and offered access to a cryptocurrency platform. 

Everything seemed legit and Catherine traded happily for several months.  But then the person who contacted her advised that the platform was shifting servers and her funds would need to be transferred to a secure account while the changes were made.

A day later, she discovered her funds had gone. LinkedIn told her that the account of the person who originally contacted her no longer existed.

This trend, which has been noted by the FBI in the US, resulted recently in a warning to users by LinkedIn against sending money to people they do not know and responding to accounts with questionable work histories.

Systematic and highly organised cryptocurrency scams like these are now rated by regulators as “by far” the top threat to investors, according to the North American Securities Administrators Association.


A global phenomenon

But this explosion of fraud – in part due to social media and in part to the disruption caused by the pandemic – is not just happening in North America and is not confined to cryptocurrency.

In the UK, the Financial Conduct Authority recently warned of an 86% increase in screen-sharing scams over the past year. In these scams, the perpetrator uses screen sharing software to take control of the victim’s computer, draining their bank accounts. Many of the victims originally clicked on an advertisement and were contacted by a person claiming to be a financial adviser.

The FCA noted that many people had become comfortable during the pandemic with using communication tools like Teams or Zoom, which allow users to share their screens with the other party.

“One of the main warning signs of a potential scam is if a firm or individual contacts you out of the blue. If you are asked to share your screen or provide remote access to your phone or computer, this is a warning sign it’s a scam,” the authority warned.

So sophisticated have these operations become that attempts by users to retrieve their money can invite follow-up scams in which bogus operators offer the victims help in exchange for a fee.


Scams on the rise in Australia

A recent report by the Australian Competition and Consumer Commission, a regulatory body, found Australians lost a record $2 billion to scams last year, although the actual number may be much higher due to the tendency of many not to report the crime. The number of scams officially reported to the agency was up 84% in just two years.

“The increasing number of reports by people experiencing vulnerability is a very worrying trend,” ACCC deputy chair Delia Rickard said. “Everyone from government, to banks, and digital platforms needs to do more to address this.” 

The most frequently targeted groups in Australia were people aged 65 and over, with an enormous increase in scams related to cryptocurrency offers, as well as pyramid schemes that promise the user riches by recruiting others.

Ponzi schemes are another favoured avenue for fraudsters, where the criminals create the illusion of investment success by paying dividends from the money of new victims. This was the modus operandi of the notorious Melissa Caddick who fleeced family and friends of more than $30 million by posing as a financial adviser.


Pandemic a cover for fraud

The pandemic itself has also provided a cover for fake operators to extract millions from retail investors.

In the US, the Securities and Exchange Commission recently announced an upsurge in fraudulent stock promotions by companies making false or misleading claims about purported COVID-related products such as temperature scanners, mobile apps and face masks.

One company issued a press release, saying it had a committed purchase order for rapid testing kits worth more than $600 million. The company’s stock price surged more than 400%, yet there was no such order.

So-called “pump-and-dump” schemes were also on the rise, the SEC noted, with fraudsters profit at the expense of unsuspecting retail investors by spreading false rumours to pump up a stock’s price to draw in investors, before dumping the stock to make a quick profit.


Why the upsurge and what to do about it?

Why this increase in scamming is happening now is put down by regulators to a variety of factors. 

  • First, the growth of social media — with its often lax privacy controls and lack of quality oversight — leaves people open to fraud. 
  • Second, the growing popularity of free apps that offer easy access to formerly sophisticated investments create the opportunity.
  • Third, the growing popularity of remote, digital communication has made many people more trusting of platforms like Zoom and Teams.
  • Fourth, low expected returns from stocks and bonds, with prices until recently at historically high levels, has fanned a search for alternative sources of yield.
  • Fifth, the isolation and loneliness created by the pandemic — particularly for older people — has left them more liable to offers from friendly and persuasive strangers with something to sell.
  • Finally, the bad guys have become increasingly sophisticated in their methods and have shown an ability to fool even the most alert consumer.

As to how to protect yourself, the advice from experts is uniform:

  • If an investment opportunity seems too good to be true, you should go nowhere near it. Offers of high return-low risk should set off alarm bells.
  • Be wary of any unsolicited offer or unexpected contact, particularly if it comes at you via a social media platform.
  • Tighten up your privacy controls on social media and protect yourself from identity theft. Do not share your screen with someone you have never met.
  • Finally, and most importantly, always get  independent financial advice from a registered professional before you invest.



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