Examples of investment fraud

Sometimes investors who have suffered financial losses leap out of the frying pan into the fire. There are financial operators who play on the hopes of investors who have already suffered a loss through fraud. Special care must be taken when someone approaches a victim of fraud professing to know how he or she can recoup their losses. There seem to be lists of the names of such victims circulating in the market and being sold to new fraudsters. Investors who have already suffered losses usually lose out for a second time, either by putting in new money, exchanging the worthless shares or cryptocurrencies for other tempting-sounding products, or paying fees for services that are not subsequently provided.

You should be suspicious about calls or emails claiming to be from FINMA because as a rule FINMA does not contact individuals. FINMA uses email addresses that end with @finma.ch. Neither is FINMA ever involved in processes or offers allegedly seeking to redress financial losses. If you are in doubt, contact FINMA using the official addresses.

FINMA contact details

Fraudsters use a wide variety of methods and tactics, and their repertoire is constantly being expanded and modified to reflect the latest advances in technology. The watchword in all these is cases is the same: If you are in any doubt, steer clear of transactions and offers of this kind.

In the financial market there are numerous companies offering to carry out private debt restructuring. However, many of these providers are dubious. Their business model often works as follows: Customers are referred to the debt restructuring companies by intermediaries. After contacting the debt restructuring company, the latter will draw up a payment plan. Before debt restructuring is carried out, however, debt restructuring companies demand substantial advance payments from customers in the form of deposits and administration fees. Once the advance payment or the first monthly instalment has been paid, often nothing more happens. The instalments paid are often not or only partially passed on to the creditors. High advance payments and unrealistic promises of a quick and uncomplicated debt solution are often indications of the dubious nature of debt restructuring companies. To protect yourself from such dubious providers, FINMA recommends contacting cantonal debt advice services in the event of financial difficulties and not entering into contracts with private debt restructuring companies.

Scammers have become very skilled in producing websites which very closely resemble the websites of legitimate companies. In the case of websites of companies claiming to be authorised by FINMA, it is therefore advisable to check whether they are in fact the company’s website or merely a copy. The website may have been created by an illegally active financial operator who is using the company’s name with fraudulent intent. Contact information (phone number and email) or URL address can be used to identify a cloned website and help investors to avoid falling into the hands of fraudsters.

Many providers appeal to the environmental conscience of potential investors. There is a wide range of sustainable investments, including reforestation projects in South America or Romania and wind farms in Poland. In selecting these themes the providers seek to tap into the desire of many investors to make environmentally useful investments.

In simple terms, whether a reforestation project constitutes an activity requiring authorisation or not depends on whether the customer is assigned a clearly defined number of trees as his or her property which could then be allocated to the customer if the provider becomes bankrupt. If this allocation is not possible and the investor does not therefore own any actual trees, the investment may be a service requiring authorisation or a financial product requiring authorisation. Obviously, it is not easy for investors to assess the situation in each individual case. If you are uncertain it is advisable to contact FINMA via questions@finma.ch to find out whether the company is authorised or not.

It is not uncommon for customers to be encouraged to recruit other customers. By doing so, they may unwittingly make themselves liable to prosecution.

Dubious providers often use social networks to advertise their financial services. Marketing systems in which investors recruit other potential investors via social media and personal networks are therefore monitored by FINMA. Unauthorised financial service providers often use these methods to publicise their offerings and quickly attract large numbers of followers. Investors should be alert to the fact that such offers may be pyramid schemes. Often only the first few participants gain any actual benefit, while the others get no return or even lose their investment. It is also advisable to clarify whether one may in fact be committing a criminal offence by recruiting other investors who then lose their money.

Unscrupulous providers can also be encountered in the area of FinTech services. Such providers do not actually intend to provide clients with a service. But distinguishing reputable providers from unscrupulous ones is not always easy. However, taking some simple precautionary measures will often be sufficient to avoid losses.

Example: In order to comply with anti-money laundering rules, reputable providers will often need to identify their clients. To this end, they will need to demand documents such as passport copies from their clients. By contrast, unscrupulous internet sites will often not demand any such documents. You can find detailed information on crypto offers here.

Special caution should be exercised in the case of companies purporting to sell precious metals; not everything that glitters is gold. It can be difficult for investors to find out if the company in question is operational in any real sense. The internet is open to all, and some companies cannot cover the cheques that their attractive websites write. It is difficult to assess the commercial soundness of mining operations in remote locations. Dubious companies often offer gold and platinum or securities based on these precious metals. However, after the investor has purchased the precious metals, which many people still regard as essentially secure, they simply never materialise.

FINMA is regularly made aware of cases in which aggressive methods are used to sell shares in alleged start-up companies. The companies in question are often allegedly active in particularly attractive areas of the economy such as alternative energy (wind and solar power), commodities (gold mines, crude oil etc.) or medical technology.

What should potential investors look out for in terms of the purchase price and commission?

The purchase price of the worthless shares is generally high compared with their nominal or face value. The nominal or face value of a share is calculated from the share capital of a company and the number of shares. If a company has share capital of CHF 100,000 and has 100,000 shares, the nominal or face value of the share is CHF 1. If the selling price of the share is significantly higher, caution is advised. In addition, the sellers usually also charge a substantial commission.

How are potential investors attracted?

The worthless shares are very intensively advertised and marketed. Potential buyers are frequently contacted by telephone and put under pressure to buy. The telephone salespeople sometimes operate from foreign call centres. In cold calling scams of this kind, a salesman will claim for example that the company is about to launch an IPO which will increase the value of the shares exponentially. Professionally designed websites and expensive high-gloss prospectuses from the companies are also used. These are often wrongly interpreted by investors as an indication that the company is a serious proposition.

What usually happens with the invested money?

Usually, the companies involved in scams of this kind are no more than shells which have never been operationally active. Usually the money raised is immediately withdrawn from the companies, most of which are liquidated after a certain time. Experience has shown that investors generally suffer a total loss.

Are these fraudsters ever brought to justice?

The individuals behind schemes of this kind usually operate through front men or women in Switzerland, which means that it is difficult to hold them to account under criminal or financial market law.

How can investors protect themselves against making the wrong investment decisions?
Although any company may sell its own shares, many other activities in the field of share trading require authorisation from FINMA. It is often unclear to investors whether a company needs to be authorised to sell shares or not. Anyone considering buying shares in unknown start-up companies should therefore look at the proposition very carefully.

The first port of call should be the Commercial Register. If the company name and registered office change frequently or if there have been numerous capital increases involving shares with very small face values (often referred to as “penny stocks”), this can be a warning sign. We also recommend checking the company’s financial data to find out whether the share price in any way reflects a corresponding real value in the company.

An over-the-counter listing is not the same as a full stock exchange listing. In Germany, shares that are being sold are sometimes listed on the over-the-counter market. In contrast to a full stock exchange listing in Switzerland, this over-the-counter listing on a German exchange does not mean that the shares are subject to the Swiss listing rules. The prices of shares with an over-the-counter listing can change very rapidly and by large amounts, especially if they are penny stocks with a negligible face value. These shares may be impossible to sell on if they suffer a major fall in price.

The fact that an investment product has a security number is no guarantee. This unique identifier is assigned in Switzerland by SIX Financial Information for identifying securities and financial instruments. However, the security number merely confirms that the security in question exists. It does not guarantee that a product is a sound investment proposition. Even an investment fund which is domiciled in the Cayman Islands or Antigua and not authorised for sale in Switzerland can have a Swiss security number, but the fact that it has a Swiss security number is no guarantee that it will be possible to sell the fund units at a later date.

Offers promising quick profits are generally associated with high risks. This is also true of binary options. Platforms on which these binary options are traded offer quick profits with a small initial investment. Binary options enable investors to bet on the future value or price of a stock, commodity, currency or index. This is a market which includes both legitimate operators and large numbers of black sheep. The providers of binary options are often domiciled abroad, and not all of them are authorised and supervised in their home country. It is therefore advisable to look closely at providers before deciding to use their services. To avoid losses, investors should take the time to consider whether a product of this kind fits their financial risk profile.