Investors are more vulnerable than ever to falling for scams with the Covid-19 pandemic leaving dents in most peoples’ pockets. 

This week, the regulator of financial services providers issued a warning to the public to steer clear of Crowd1, an offering that is said to have attracted tens of thousands of members in South Africa. 

Crowd1 is not authorised to render the financial services it is providing, the Financial Sector Conduct Authority (FSCA) says. “Crowd 1 is neither an authorised financial services provider (FSP) nor a representative of an authorised FSP,” the regulator says.

According to the FSCA, Crowd1 is being investigated by the South African Reserve Bank.

At the weekend, an Afrikaans newspaper reported that the scheme had attracted local celebs, including Springbok rugby players Eben Etzebeth and Duane Vermeulen. 

TV presenter Ferdinand Rabie’s face also appeared on a Facebook page praising Crowd1, Rapport says.

All have apparently invested in the scheme and their photos are being used “to attract even more gullible people to keep the money machine rolling”, the article says. 

Financial regulators around the world have issued warnings about Crowd1, which has been banned in Namibia and the Philippines.

In a newsletter to investors, Sue Torr, the managing director of financial planning practice Crue Invest, says that despite heightened consumer awareness and education, more and more people fall victim to investment scams and fraud, especially in times of financial desperation.

When you’re considering an investment offering, especially one offered by an unknown entity, Torr says you should look out for the following tell-tale characteristics of a scam.

Abnormal returns: Any investment promising returns greater than what investment markets are able to generate should immediately sound alarm bells. Torr says that if the investment promises to double or triple your money in a short period of time, back off.

Bank account: Be suspicious if the bank account of the investment is held in the name of an individual. A legitimate enterprise will hold a business account with a reputable financial institution, she says.

Business model: Torr says investment scams are notorious for their complex business models and jargon. The business model should be transparent and easy to understand and the company should take time to explain it to you, including underlying assets and how income will be generated. “If you don’t understand how your money will be used to generate investment returns, proceed with caution.”

Competitions: If you receive communication that you qualify for a loan you didn’t apply for or won a competition you didn’t enter, beware. 

Free email accounts: A legitimate investment company would operate off a secure email server and would not allow their customers’ confidential information to be on a free email server such as Gmail, Yahoo or Hotmail.

Giveaways: Many investment scams offer free goods and services, including bitcoin or other digital currency, holiday packages or free weight loss shakes to sweeten the deal. Reputable investment companies don’t need this type of marketing to attract investors, so stay alert.

Guarantees: Sherwin Govender, a business development manager at Glacier, says that if the word “guaranteed” is used in the marketing material of an investment or product, you have a right to know who stands for that guarantee. “A guarantee is a formal contract taken between you and a business entity. In simple terms, it’s a written promise and the value of any promise is based on who is making it. Basically, it boils down to the ability of the entity to make good on its promises,” he says.

Jargon: Torr says scams often use words such as “exclusive offer”, “select”, “elite”, “limited offer” or “opportunity of a lifetime” in their marketing material.

Lavish lifestyles: Fraudsters often use social media to flaunt their lavish lifestyles, complete with flashy cars, designer gear and trips to exotic destinations. Check the Instagram, Facebook and Twitter accounts of both the individual you are liaising with and the company they represent, Torr says.

Licensed: The investment company should be licensed with the FSCA and should display their financial services provider number on all their marketing material, including their website, business cards, brochures and social media pages. If you’re unsure, phone the FSCA to verify the organisation.

Pay upfront: After piquing your interest, many investment scams require you pay upfront fees to participate or buy into the scheme. If an investment requires that you “pay to play” consider it suspicious, Torr says.

Physical address: The physical address of the organisation should appear in all marketing material, including websites and brochures. But don’t take it at face value, Torr says. Use Google maps to  locate the actual building and verify the address. Many legitimate companies pin their physical locations on Google maps as an added measure of credibility.

Pressure: If you’re being pressured into accepting an offer that is available for a limited time only, you should question its authenticity, Torr says.

Private information: Any unsolicited email, phone call or text message that invites you to participate in a scheme should raise red flags. And don’t provide or confirm your private information such as your ID number, bank account details or tax information via a hyperlink, Torr warns.

Qualifications: Govender says you should do background checks on financial intermediaries to verify their credentials. It’s best to work with advisers who have the Certified Financial Planner accreditation. “You wouldn’t place your health in the hands of a person who doesn’t have some sort of medical qualification, so why would you entrust your investments to an unknown, unqualified stranger?” 

Recruitment: Many multi-level marketing and Ponzi schemes require that each “investor” recruit others to keep the scheme afloat. If there is any form of recruitment, it is likely to be some form of pyramid scheme, Torr says.

Silver bullets: There’s no magical, easy way out of financial distress. “All investments carry some form of risk… Be vigilant if no risks or a worst-case scenario are disclosed. Asking informed questions can deter scammers who prefer people who are unaware and trusting,” Govender warns.

WhatsApp: Torr says you should be on your guard when any investment opportunity is communicated with you via WhatsApp, especially if the message was unsolicited.