What is investment fraud?
Investment fraud is a type of financial deception where an individual or entity induces people to invest money based on false, misleading, or deceptive information. The intent is to trick the victim into parting with their money under the guise of a legitimate investment opportunity, but the funds are typically misused or stolen by the fraudster.
Common types of investment fraud
There are several types of investment fraud, but perhaps the most common and well-known type are Ponzi schemes. This a fraudulent investment operation where returns to earlier investors are paid from the capital of new investors rather than from profit earned. These schemes rely on a continuous influx of new investors to survive and inevitably collapse when recruitment into the scheme slows or stops. Other types of investment fraud can include pump and dump schemes, boiler room scams, romance scams, fractional ownership schemes, wine investment schemes, and advance fee fraud, amongst many others.
Warning signs of investment fraud
Some of the most common warning signs of investment fraud include:
- Unrealistic returns: Promises of high or guaranteed returns with little to no risk.
- Pressure to act quickly: If someone is urging you to make an immediate decision, it could be a tactic to prevent you from conducting proper due diligence.
- Unregistered investments: Fraudsters often opt for investments and schemes that lack regulatory oversight, such as crypto-assets, making it easier for them to operate and harder for investors to recover losses.
- Complex strategies: Fraudsters often use complicated terminology or strategies to confuse investors and hide the lack of legitimacy behind the investment.
- Unsolicited offers: Receiving an investment opportunity out of the blue, especially from someone you don’t know, is often a sign of a scam.
What immediate steps should you take if you suspect you have been the victim of investment fraud?
While the exact steps that should be taken will depend on the facts of the particular case, in most instances you should take the following, immediate steps:-
- Do not invest any more money into the scheme;
- Preserve all documents, communication, and records related to your investment;
- Consult a solicitor with experience in financial fraud disputes and investigations; and
- Consider reporting the matter to the relevant authorities.
Challenges in recovering losses
There are several challenges involved with recovering losses associated with investment fraud. These often include:
- Asset dissipation: Fraudsters often try to hide or remove assets from the jurisdiction, making recovery more difficult.
- Jurisdictional issues: If the scheme operated across borders, different legal systems and regulations can pose challenges.
- Tracing and identifying assets: A victim’s funds often move through multiple accounts and entities, sometimes across jurisdictions, making it difficult to trace and identify where the money has gone.
- Multiple victims: Fraudsters typically mix the funds of various investors, complicating the process of tracing individual assets and determining who has a claim to what asset or sum.
- Anonymous perpetrators: Fraudsters often operate under pseudonyms so identifying the perpetrator can also present challenges. This is especially so in crypto asset-based fraud, where transactions are conducted through blockchain technology. While all transactions are recorded on the blockchain, identifying the real person behind a wallet address can be difficult without additional information.
What can be done to recover losses and how can Wedlake Bell help?
Despite some of the common difficulties explained above, there are many steps that can be taken to help recover losses. As above, the precise steps that are taken will depend on the facts of each case.
However, disclosure orders are a common and often very helpful tool in identifying the perpetrator of the fraud and gathering evidence to support a fraud claim. These orders can compel banks, financial institutions, or other entities to reveal the flow of funds, helping victims trace where their money has gone. This is crucial in identifying both the assets and the individuals behind the scheme.
In addition, a victim can consider apply for a freezing injunction, which is a court order that restrains a defendant from disposing of, transferring, or dealing with their assets. This order can apply to assets within the UK or, in some cases, internationally. By freezing the perpetrator’s assets, the injunction increases the likelihood that funds will be available to satisfy a court judgment if the victim wins the court case.
A victim can also consider using insolvency proceedings. This includes placing a company suspected of fraud into administration or liquidation – at which point, an administrator or liquidator of that company can, using their statutory investigation powers, assess, gather and preserve assets.
We have considerable experience dealing with these types of claims, including having successfully applied for and obtained disclosure orders, freezing injunctions and other types of “interim” orders.
If you suspect that you may be the victim of investment fraud, then please do not hesitate to contact a member of the team and we would be happy to assist.