High Numbers of Smaller Investors Hit by Ponzi & Pyramid Schemes, Costing Brits Millions

Pyramid and Ponzi schemes are fake investments promising guaranteed high-interest returns.

Ponzi schemes pay existing investors with funds collected from new investors, while Pyramid schemes pay investors to recruit more participants. Investors may be paid an initial return to make them believe the investment is legitimate, but most funds are never invested, and the fraudsters usually disappear with whatever money is left.

These schemes also often rely on the victim authorising money transfers from their bank account to the scammers, also known as Authorised Push Payment (APP) Fraud.

Many Ponzi and Pyramid schemes involve Cryptocurrency investments. A good example of this was when earlier this year, Cleveland Police advised people not to invest in Coscoin, a cryptocurrency investment platform suspected of being a Ponzi scheme. Coscoin investors told Police they could not access or withdraw their money, and the platform has since shut down.

Data reported by Action Fraud, gathered by the investigation agency Conflict International, revealed the extent to which investment fraud as a result of Pyramid and Ponzi schemes is increasing in the UK:

• More than £450m was lost to pyramid and Ponzi schemes over the last three years.
• The average amount lost to a Ponzi and pyramid scheme was £14,332 in the year to April, down 81 per cent from an average of £74,721 between May 2022 and April 2023.
• Police received 4,083 reports of pyramid and Ponzi schemes in the year to April, up from 3,220 the year before.

Mike LaCorte, chief executive of Conflict International, said:

“More people than ever are in danger of falling victim to a form of fraud we might once have solely associated with high-net-worth individuals, who are still at significant risk. If something sounds too good to be true, that’s because it probably is.”

Authorised Push Payment Fraud (APP Fraud) happens when people are tricked into transferring funds from their bank account directly to the scammer’s account. By getting the account holder to authorise the payment, security measures are easily bypassed, and the money is transferred almost immediately. The scammer then moves the money to another account, often overseas, making it difficult to trace and recover.

Some banks have previously tried to blame their customers for losing money in this way, arguing that they ‘authorised’ the payment, so it is their fault their money has gone. However, in recent years, there have been an increasing number of cases where the bank has been found responsible for the loss.

The first step is to contact your bank and Action Fraud. Your bank should investigate and try to recover your money. If the money cannot be recovered, the bank does not accept your claim, or you disagree with their decision, you can complain to the Financial Ombudsman Service (FOS). FOS is an independent, government-backed service that settles disputes between financial businesses and their customers.

Action Fraud has produced helpful guidance to help explain Pyramid and Ponzi schemes and what to do if you have been a victim.

It is important to carry out rigorous checks before investing online. If necessary, take advice from an Independent Financial Adviser (IFA) listed by City watchdog, the Financial Conduct Authority on their Financial Services Register. Double-check any website addresses, contact details, and bank account information in case clone firms operate under the same or a similar name.

Be wary of investing simply because friends and family are. It pays to undertake independent research, and remember, if an investment scheme seems too good to be true, it probably is!

Commenting on the latest statistics, Legal Director, Sarah Spruce, said:

“The amount of money lost to investment fraud is staggering, and these latest figures reveal the devastating impact these elaborate but ultimately fake investments such as Pyramid and Ponzi schemes can have on people financially and emotionally. Scammers will use different sophisticated tactics to convince their victims to hand over money in these schemes with false promises of high returns.

“As we always say to our clients and their families – don’t feel embarrassed or ashamed if you have been scammed; you are not alone, and expert help is available. Get in touch with my specialist team who can assess your case and help you file a complaint directly with your bank or take your case to FOS.”