WARNING TO INVESTORS: 10 CRITERIA OF FICTITIOUSNESS OF AN INVESTMENT PROJECT
Ukrainians have already lost hundreds of millions of hryvnias in quasi-financial projects set up by frauds in the “grey areas” of capital markets, free from regulation and any guarantees of observance of investors’ rights and responsibility of participants. Such zones have arisen due to the delays in improvement of the financial legislation, and, in particular, include forex trading, cryptoassets, binary options, investing in financial instruments, asset management on capital markets, etc.
The NSSMC informs investors on 10 criteria of fictitiousness of an investment project or investment transactions. Presence of at least some of them should become a reason for an investor to analyze the advertisement promises more thoroughly and consider the investment of one’s money more carefully.
The warning is composed on the basis of analysis of the existing and already terminated dubious projects.
The criteria which enable to identify potentially fraudulent projects are as follows:
- a high percent of the guaranteed profitability;
The main feature of scam projects is the proposition of excess profits, which are often many times higher than the average deposit interest rate of banks. Some projects offer profitability of 100% and more per annum, while the description of the algorithm of using money and the logic of earning is enormously vague.
- the absence of the required permits and licenses;
As a rule, a project does not have any official regulatory permits and licenses to perform the activity related to the provision of financial services, asset management or other services on the capital markets in the country where it raises money. Sometimes the investor is presented with “licenses” from dubious foreign organizations or exotic countries.
- aggressive marketing;
Most scam projects need aggressive advertising support. As a rule, advertising campaigns are implemented in the Internet. Being extensive, bright, promising, usually the advertisement is solely based on emotional motives, but not on a rational reasoning. A large number of positive reviews on a company’s website, recommendations from famous bloggers and media persons or even a net of sibling “partner” websites in other jurisdictions should not allay concerns.
- the absence of an office;
the availability of online communication only, absence of an office in the city or country where the project offers its services. The absence of the identified employees with the professional history, who have responsibilities for the investors’ funds management. The conclusion of deals without a physical presence, personal or electronic signature, and reconciliation of documents. The absence of the functional back-office, such as a legal department, accounting department, and related services.
- the absence of registration in the country of investment raising;
the absence of legal registration of the entity or project in the country of investment raising. The contact legal entities and beneficiaries are, as a rule, residents of such countries as the Seychelles Islands, the UAE, the British Virgin Islands, Saint Vincent and the Grenadines, the Republic of Vanuatu, the countries with offshore zones, preferential customs or registration terms.
- the absence of investor accreditation;
As a rule, the absence of any inspection of the investor’s financial standing, credit history. Projects are not interested in the investor’s financial capabilities, resources, and are ready to work even with low-income clients, offering them loans on enslaving conditions.
- suspicious or unverified biographies of managers;
Unavailable information on the actual project managers, people responsible for legal, financial, accounting support of the project activity. Vaguely worded and juristically inaccurate job titles of figure-heads, which are mentioned in promotional materials. The absence of the confirmed professional history of such persons. The presence of facts or implemented projects that cannot be confirmed from the previous activities of the top-level managers. The public persons who may present themselves as managers of such projects may actually be hired actors and may not be involved in the management process in any way.
- absence of the signed documents;
Under the Ukrainian law, the conclusion of financial agreements requires the personalization of signatories, personal signing of papers, the presence of such documents physically signed by both parties to the agreement in several copies or signed by means of an electronic signature.
- the insistent offer to involve friends;
The offer to an investor to involve friends, relatives, acquaintances in investments is a common practice of scam projects. Dubious projects develop and offer a detailed program of receiving additional bonuses and income in case if the investor involves new people in the project, for example, by involving them by means of his/her referral key.
- concealment of ownership rights.
The absence of any documents that can confirm the ownership rights of a person to the assets or their share in which the scam project theoretically invests. Tha absence of systematic reports on transactions, activity, results of the management of the investor’s assets by the project.
The NSSMC appeals to investors to be especially cautious and careful about investing in a project if there are at least a few such criteria. It is best to make an additionally check to make certain of the reliability of the project or to refuse make such investments altogether.
Also, it is always possible to make relevant requests to the financial regulators which will provide relevant conclusions and information within their powers.
The NSSMC contacts form can be found on the homepage: https://www.nssmc.gov.ua/