Investors, no matter how sophisticated, make mistakes. Even presumed experts like financial advisers and wealth managers investing in good faith still lose money.
Sometimes, however, financial managers are negligent, making it easy for fraudsters to take advantage. In other instances, purported financial managers are the scammers themselves, and those who entrust their money to them fall victim.
Digitalisation has made financial fraud that much easier. Borders mean little online, so a scammer in one country can target people on the other side of the world. The international nature of these scams frustrates efforts to seek recourse.
As is the case with the recent spate of self-invested personal pension claims that have been closely covered by this publication, individual investors are often left floundering, unsure whether investment losses are legitimate, or if someone can be held accountable.
How is it possible to unpick professional negligence from financial crime?
Fraudsters rely on ambiguity, hoping to conceal their schemes under the guise of legitimate business downturns. More than ever corporate investigators are asked to resolve that ambiguity.
Far from trench coat and fedora-wearing figures – a common misconception – the investigations industry has professionalised over the years.
Investigations firms nowadays act as extensions of legal teams, working hand in glove with lawyers to obtain the best evidence that may otherwise be inaccessible, and determine if fraud or negligence has occurred.
If it has, the investigator will help build an evidential case and ultimately recover losses through creative strategy.
Corporate investigators are not hampered by red tape, lack of bandwidth or funding that constrains regulators and other authorities. They can be anywhere in the world in the time it takes to book a flight.
Legitimate loss vs evidence of a scam
Fraudsters routinely attribute losses to poor corporate performance, a bad market, or rogue employees. An investigator’s first step is to identify anomalies in these narratives.
The tell invariably, but not always, lies within the entities that receive investments. Those entities, usually unlisted or non-public, are often false fronts or knowingly mismanaged.
Personal relationships between an investment manager and the company receiving investment are another red flag. Such a relationship immediately raises questions: why was this company chosen? Was there due diligence?
One of the more common features of pension scams are pump-and-dump schemes, where money pours into a company stock that hardly trades, only for that company to go into administration a short time later.
In all of these scenarios, there are usually discernible signs of something amiss: a fake address, a company with no employees, a website that plagiarises others.
It is vital to approach every case with fresh eyes. A good investigator will look sceptically at information that supports their case theory. When they hear hoofbeats, they think horses and zebras.
Is the money gone forever?
It is important to consider whether losses are recoverable. Misappropriated investments can be concealed. Guilty parties could be in a jurisdiction where courts have a poor track record of enforcing foreign judgements.
