Unregulated Investment Scams

Without government supervision, there’s always a possibility you’re dealing with unregulated investment scams!

A government oversight agency does not have to authorize every collective investment scheme. But when an investment platform is unsupervised, it just might be fraudulent. Which is why con men often run unregulated investment scams. It’s easy for them. The only people they have to con are the investors. Not the government investigators.

So what is a collective investment scheme? It’s a type of fund popular in the United Kingdom and certain other Commonwealth nations. It’s collective because it combines the financial resources of several different people. For this reason, another term for it is a pooled investment. 

Such funds may be public (e.g., mutual funds) or private (e.g., hedge funds). Either way, professional managers typically administer them. These managers invest the pooled resources in stocks, bonds, property, or similar assets. Members of the pool share profits (or losses) in proportion to the size of their investment.

Exercise Maximum Caution

Here’s a general rule: Exercise maximum caution before you agree to join an unregulated collective investment scheme. A professional financial adviser is your best bet to determine if the offer is legitimate. And, no less importantly, if it is appropriate for you and  your needs. Make sure you know if there are any hidden fees. Ask what the rate of return realistically will be. And what the basis is for claiming so.

Unfortunately, according to one recent study, 48% of investors in unregulated schemes in the UK did not consult with any financial  professional before they signed up for them. Moreover, 13% of those investors had no idea that these schemes were unregulated. 

The most likely age cohort of victims of scams masquerading as unregulated investment schemes was retirees above the age of 55. They were three-and-a-half times more likely to invest in these scams than the rest of the population. One estimate is that as many as five million British retirees invested in unregulated collective investment schemes at one point or another.

Unregulated Investment Scams Expand into the Caribbean

Beginning in 1989, unregulated collective investment scams reached Jamaica. Typically, their hawkers claimed the monthly yield would be unusually high. Because word travels fast around an island, these schemes attracted clients mainly through referrals from existing members. The country’s financial watchdog soon took notice. It issued advisories calling on the public not to invest in them. It suspected they were scams. The blunt message to Jamaicans was that they should “avoid putting their hard-earned money in the growing number of unregistered investment schemes presently operating in the island.”

Next, the International Monetary Fund (IMF) took notice too. So much so it decided to intervene. It met in special session in Jamaica in 2008 with member states of  the Eastern Caribbean Currency Union. Afterwards, the IMF released a statement warning that “continued vigilance  over the financial sector is warranted, in particular with respect to  the risks posed by the unregulated investment schemes promising implausibly high rates of return.”

Training the Regulators

Shortly thereafter, the U.S. Securities and Exchange Commission  (SEC), the Commodity Futures Trading Commission (CFTC) and a number of other agencies joined the IMF effort. The result was a three-day seminar in Jamaica on “Understanding and Combating Unregulated Investment Schemes.” The conference’s aim was to provide the region’s financial authorities with intensive training on methods for investigating and prosecuting unregulated investment scams.

The warnings issued by the Jamaican government and the IMF and the training provided at the seminar were prescient. Sixty-four such schemes quickly collapsed. Nonetheless, many Jamaicans continued to invest in them anyway.

At least 58 unregulated collective investment schemes also operated in the Cayman Islands. The other Caribbean nations that unregulated investment scams targeted include Antigua and Barbuda, Dominica, Grenada, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and the  Turks and Caicos Islands. Many went broke, leaving investors with no possibility to retrieve their funds. In addition, some of these schemes maintained brokerages or had some other financial presence in Colombia, Ecuador, Panama, Peru, Venezuela, and even Canada.

If you think you’ve been the victim of an unregulated investment scam, contact the fund recovery experts at MyChargeBack