Unregulated Investment Scams

If It’s Not Subject to Government Supervision, Ask Why

A collective investment scheme is a type of fund popular in the United Kingdom and certain other Commonwealth nations that combines the financial resources of several different people. For this reason, it is sometimes called a pooled investment.

Such funds can be public (e.g., mutual funds) or private (e.g., a hedge fund) and are typically administered by a professional manager who will 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.

A collective investment scheme can either be authorized by a government oversight agency or not. If it is unregulated, of course, it is not subject to government regulations, which is why scammers find it convenient to operate as one. When you are victimized by fraud, you are generally entitled to receive a refund or, in certain circumstances, apply for a chargeback.

Before you agree to invest in an unregulated collective investment scheme, therefore, you should exercise maximum caution. A professional financial adviser should be consulted to determine if the offer is legitimate and, no less importantly, if it is appropriate for you and your needs. Be sure to inquire if there are any hidden fees and what the rate of return can realistically be expected to be.

Unfortunately, according to one recent study, 48% of investors in the unregulated schemes in the UK did not consult with any financial professional before doing so. And 13% of the investors had no idea that these schemes were unregulated. The most likely age cohort to fall victim to scams masquerading as unregulated investment schemes was retirees above the age of 55 with £10,000 or more in savings. They were three-and-a-half times more likely to invest in these scams than the rest of the population. It has been estimated that as many as five million British retirees have invested in unregulated collective investment schemes.

Expansion into the Caribbean and the Americas

Beginning in 1989, the same type of unregulated collective investment schemes, which claimed they would provide unusually high monthly returns, proliferated in Jamaica, attracting clients mainly through referrals by existing members. The country’s financial watchdog eventually issued advisories to the public to refrain from investing in them, suspecting that they were scams. Jamaicans were bluntly told “to avoid putting their hard-earned money in the growing number of unregistered investment schemes presently operating in the island.”

The International Monetary Fund (IMF), moreover, was so concerned that it met in special session in Jamaica in 2008 with member states of the Eastern Caribbean Currency Union to address the issue. It afterwards released a statement that warned 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.”

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

The advice of the Jamaican government and the IMF and the training provided at the seminar was prescient. Sixty-four such schemes quickly collapsed, but many Jamaicans continued to invest in them afterwards nonetheless.

At least 58 unregulated collective investment schemes have also operated in the Cayman Islands. Other Caribbean nations in which the schemes were offered 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.

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