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Expert: How to identify fraudsters when seeking to invest

Have you ever come across financial deals that you are sure they are too good to be true; and the temptation to be part of them too seductive?

Buroti maguta maguta located just one kilometer away from the main road (or Indian Ocean) at Sh350,000, an eighth (of an acre) in a well-to-do residential area being sold by a reputable company, part with some amount of money to have your mobile loan app limits increased to certain amounts, call this radio station and if you are caller number 5, you win Sh100,000 (after being charged a hefty sum to call in and be put on hold for a while!)… these are just but a handful of hundreds of ways in which people either go or scam for quick cash.

And it is hard to tell the genuine deals from the shady ones. Some are carried out by trusted family, friends and even somewhat reputable companies.

By the fact you have a relationship with them, or because a ‘trusted’ influencer has advertised for the company, potential victims can easily be lured.

You know what I’m talking about? Those land sales turning out to be scams because a popular influencer marketed them to her fans?

But then, if you are yet to be duped, there are ways you can identify if someone or a company has the intentions to take off with your hard earned cash be it in a short or long con game.

Here’s how.

The red flags

According to Nairobi-based financial advisor Ms Jackline Mwangi, it is important to first verify the legitimacy of an investment opportunity or company before committing your finances.

“We live in a digital era. Research. You can use Google, go to the specific company’s website – but these days people are very smart. They know how to imitate the website and use their fraudulent website’s link when they intend on scamming you,” says Ms Mwangi.

“So research. Research about the company, check with the regulatory bodies, also, investigate the track record of that particular institution at hand. One can also visit an office- people are used to online dealing but taking time to walk into that company and asking guards about the company’s history. These are the small steps one can take,” she explains.

The same can be applied to individuals who are offering investment opportunities. Physically getting background information on them from anyone who previously interacted with them will allow one to know the legitimacy of the deal.

When evaluating potential investment opportunities associated with new acquaintances, one should be on the look for scam warning signs such as lack of transparency.

Ms Mwangi says some of the red flags include being taken in circles about crucial information,  the promise of unrealistic returns and the other parties being unregistered or unlicensed by relevant authority bodies.

Pressure tactics

She says that to identify scammers, one should note the pressure tactics fraudsters use on their targets such as time running out on a once-in-a-lifetime deal.

Alternatively, simply do a check on the reviews left by their previous companies on their online platforms. These would save an investor from being strung along in a long-con.

“Investors can use third party resources such as online research, financial advisors, legal services and auditors in conducting thorough due diligence. Some companies release two financial reports- the real one and the one they want to entice people with,” Ms Mwangi says.

“If you don’t understand financial statements as an investor, you can enlighten yourself by finding tools that will help you easily understand them before investing your money. For risk factors, as long as you are comfortable with the risks involved in that particular investment, then go for it. If you are not, then don’t,” she further explains.

In these evaluations, when you sense a scam in the making, the key aspects you should focus on as you carry out your due diligence include risk- whether they are high, medium or low risks; and the time that will be taken for the person/institution to give you your returns.

According to Ms Mwangi, an investor has to be patient for the specific time to lapse so they can enjoy the full benefits of their investment. The red flag, then, would be a company/individual promising high returns in a short time while the risks of loss are high.