Avoid this 'alternative investment' swindle

by Tony Levene on 03 December 2011  |  8 comments
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Traditional investments are struggling, so these salesmen will tempt you with alternatives.

These are scary times in bond and share markets. You don't have to be a financial expert to know that – simply adding up the time devoted to markets on TV news programmes and the space online or in newspapers shows we are living in dangerous times. After all, mainstream media does not bother with money matters when all is well.

The scammers who call me know this – and they adapt their pitch to suit.

At the moment, boiler rooms are less likely to try to sell their phoney shares and bonds, preferring to sell “alternatives”. Do they sound good when normal investments are under pressure? Of course they do. Will they make you a profit or, at the very least, not lose you any money? Of course they won't. So read on and learn how alternatives are all too often just an alternative method of ripping you off – alternative to mugging, burgling and bank hold-ups.

Free from the rules

“Alternatives” are anything that's not covered by Financial Services Authority – that frees them from the rules which can best be summarised as being open and honest. 

So regulated advisers do not cold call (scammers always claim that you have previously agreed to them phoning), or bother about the need to check an individual's suitability for involvement in a risk investment, or limit themselves to recommending products that are FSA-approved.

The great thing about selling alternatives is that they can be legally sold from the UK, but in an unregulated way – so you get a UK company, a UK address and a UK phone number. No need to set up in some costly overseas base – all they need is an office in one of those blocks where you can rent premises by the day.

The list of so-called alternatives is long. It includes gold bullion, wine, property (including landbanking), carbon credits, and precious stones. Now some of these can be legitimate provided they come from a trusted and known source but assume anyone who calls you out of the blue is out to get your cash. 

Offering 'expertise'

A recent report from the Financial Services Authority stated that landbanking – selling a worthless tract of land on the promise it will receive planning permission - alone had lost investors at least £200m. And despite the scam running nearly ten years, there is still not one single example of anyone making a penny piece out of this – except the promoters, of course.

What I find fascinating is that these dodgy firms may sell all or some of these, often changing their emphasis either from day to day or depending on what they think their victim will buy into. They will, of course, always claim “expertise”, but their only expertise is separating you from your money.

Fact and fiction

I was recently called by Martin who told me he represented a firm in Geneva selling “alternative investments”.  Here's part of what he said – it's an interesting mix of fact and fiction.

He told me: “We are about preserving capital. All the banks are being downgraded and have lost our money. Quantative Easing is fresh capital but the currency needs to be backed by gold. I am expecting a big financial crash. 

"Soon one in two people will be unemployed. I work 13 hours a day in the office, perhaps you do as well as it's the only way to make some money – no  one can save up for a pension. 

“I'm very hungry and very aggressive – I make £80 every time I sell something.

"I talk to and represent people all over the world, and those that listen to me will be safe.”

When he finished, I asked him who he worked for in Geneva and who owned it. 

“That's irrelevant, I am going to make you money, you must trust me,” he said.

He went on to try to sell me carbon credits. But it could have been anything else.

Martin's sales technique can be summed up in very few words – scare the living daylights out of the potential victim, take control of the conversation, and push whatever will make him a lot of money.

As for the modest £80, if you believe that, you'll believe anything. Martin is far from alone. So watch out for his clones – they'll all be reading similar scripts.