The Financial Conduct Authority has warned about the increasing use of social media to promote investment scams, saying it is leading to a changing profile of those who fall victims to fraud.
Fraudsters offering binary options, contracts for difference, Forex and cryptocurrencies often promote themselves online and through social media, promising high returns and using images of luxury items such as expensive watches and cars to lure their victims to invest.
Research by the FCA showed those aged under 25 were six times more likely to trust an investment offer received through social media than those aged 55 plus.
The regulator has revealed that during 2017 investors lost an average of £87,410 a day to binary options scams.
The FCA said after people have invested, the fraudsters often distort prices on their website, tie people in with extreme pay-out clauses and even close customer accounts, refusing to pay back their money.
Mark Steward, director of enforcement at the FCA, said: "As people have become more sceptical of investment-related cold calls and consumer habits have changed, we have seen investment fraud moving online and to social media.
"While their websites and profiles appear to be professional, they are all too often run by fraudsters who fix prices and pay-outs, or in some instances don't really place trades at all, before disappearing with innocent investors' money."
Binary options allow an investor to make a bet on the price of value of a stock, commodity, currency, index or anything capable of being measured in financial terms.
The time periods involved tend to be very short, ranging from between 30 seconds to five minutes.
The FCA has said its data found the majority of consumers who invest in binary options lose money and find it hard to make sustained profits over a series of bets and pointed out that in most cases, the firm a consumer buys options from benefits when they lose.
Action Fraud figures showed those aged less than 50 were significantly more likely to fall victim to a binary options scam versus other types of investment fraud.
More than one in five respondents said online customer testimonies and reviews increase their trust in an investment company but the FCA warned that scammers are known to create professional looking online investment platforms featuring fake customer reviews, logos, and statements, to lure in prospective investors.
A further one in 10 said they wouldn't conduct any of the listed checks at all, such as checking whether the firm was regulated by the FCA or registered with Companies House, before parting with their money.
Nick Hewer, host of Countdown who is supporting the FCA's ScamSmart campaign, said: "The amount being lost every day to online investment fraud, such as binary options scams, is staggering.
"It is vital for all those on social media to be extra cautious about engaging in any conversations or with adverts that relate to quick-wins or guaranteed returns, especially with individuals or companies you do not know."
Earlier this month the FCA said it was investigating 94 firms which may be offering binary options in breach of new Mifid II rules.
Meanwhile the European financial services regulator is considering a ban on the marketing, distribution and sale of binary options to retail clients.
The European Securities and Markets Authority is also considering whether to restrict the marketing, distribution and sale of contracts for difference.
damian.fantato@ft.com
