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The Scourge of Scammers – Why Do We Keep Getting Duped?

The Scourge of Scammers
The Scourge of Scammers – Why Do We Keep Getting Duped?

$3.3 billion.

That’s how much investment fraud cost the world last year, making it the most financially devastating cyber crime.

The tragedy is, however, that it is just one of the many scams thousands of people fall victim to every year. In fact, I don’t think it’s an exaggeration to say that scarcely a week passes without a story about a scam making headlines somewhere in the world.

As one of the most common crimes globally, scams affect millions of people – financially, emotionally and psychologically – every year. And yet, despite the worrying high number of incidents, we still don’t really have a grip on why some people are more vulnerable to scammers than others.

Research into demographic characteristics of victims reveals little in the way of a conclusive finding. All we can say with any degree of certainty is that victims of investment fraud have one thing in common: They all lose a LOT of money.

One of the most recent South African investment scams making the headlines involves the BHI Trust, in which over a billion Rand has reportedly been fleeced from hundreds, or possibly even thousands of investors.

The only scant consolation for these victims is that, unlike the Tannebaum or Steinhoff scandals, where the people allegedly behind the scams continue to enjoy the fruits of their deceit, Craig Warriner, BHI’s fund manager and trustee, is already behind bars, having recently handed himself over to the authorities.

He has waived his right to apply for bail, and has apparently requested a single cell in prison, both of which would seem to indicate he fears for his safety.

Not surprising, when you consider many of his alleged victims lost millions, while he lived the high life on his ill-gotten gains for around 15 years. Media reports tell as-yet unconfirmed stories of luxury cars and private jets, but I’m confident all will be revealed in the fullness of time once the Financial Sector Conduct Authority (FSCA) conducts its investigation.

All we know for sure at the moment (as confirmed by the FSCA) is that none of the parties under investigation in the BHI Trust scandal were authorised as financial services providers or licensed as collective investment schemes managers.

And if you or anyone you know has been affected by this scam, don’t hold your breath waiting for a speedy resolution. The court process and forensic investigation could take months, if not years.

Warriner’s next court appearance is on 29 November 2023, but the unsettling news for affected investors is that the FSCA suggests that they are unlikely to recover their lost investments.

“Conducting unregistered business is a criminal offence,” they warned. “When investors buy financial products and services from entities that are not licensed as financial institutions, they do so at their own risk, and they do not enjoy the protection and risk mitigation measures associated with appropriately licenced and authorised entities.”

In other words, “You should have known better.”

The problem is, we don’t always know better – even though we like to tell ourselves that we’re far too smart to fall for “such an obvious” scam.

Experts call it “optimism bias,” which is our inherent tendency to underestimate the likelihood of our becoming the victim of a scam.

Ironically, this actually makes us more vulnerable, as we’re less likely to take the necessary precautions or be as vigilant as we should be.

The result?

Red flags get overlooked because we smugly tell ourselves that we’re far too well-informed and smart to ever become a victim.
Investment Scam Red Flags
So, what are some of these red flags?

There are many, but most fall under the umbrella of “If it sounds too good to be true, it probably is.” Here are a few common tactics to watch out for:

  • Time pressure – being asked to act immediately to avoid a penalty/miss out on an offer etc.

  • Show me the money – anyone asking for money before sending a prize/considering your job application etc.

  • Scare tactics – telling you your computer or other device has been hacked/photographs or videos stolen etc and asking for money to avoid sensitive information appearing online.

  • Asking for information – being asked for your banking PIN or online banking passwords.

  • High rates of return on investment – Any promised percentages that are way above the norm.

What Can We Do?

The most important thing to realise is that a lot of our personal information, which we like to think is safely stored somewhere, is actually readily available for sale by unsavoury characters to even more unsavoury ones.

Accepting this, as uncomfortable as it might be, means we’re less likely to think, “If they know all this about me, they must be on the level.”

Secondly, understand that EVERYONE is a potential victim, not only those who are more vulnerable or gullible.

Scammers are becoming increasingly sophisticated, often relying psychological manipulation, and many people fall for scams thanks to the clever psychological tactics employed by the scammers, not because they have a personal “flaw.”

In fact, research shows that the psychological and emotional impact of a scam are as devastating as the financial impact. A survey by the European Commission in 2020 showed that while 24% of scam victims suffered financially, 79% suffered emotionally.

At the end of the day, forewarned is forearmed.

Ask questions. Ask LOTS of questions. And please be careful out there.