Offers of investment in various assets such as rare earths, precious metals, diamonds, etc., are increasingly made to the general public as alternatives to traditional savings products, with the promise of high yields. Be very prudent, however ... for even if investing your savings in physical goods inspires confidence, unfortunately in practice these offers are often frauds and swindles.
Vigilance is therefore essential!
The FSMA does not supervise commercial activities relating to such physical goods as rare earths, precious metals, diamonds, artworks, wine, buildings, etc. However, where physical assets are offered to the public in the form of instruments that make possible a financial investment, these 'alternative' investment products may fall within the scope of the financial legislation that the FSMA is tasked with enforcing (in particular, the Prospectus Law). In that case, such assets may only be offered to the public under certain conditions.
As an investor, you are urged to exercise heightened prudence. Don't be taken in by the false sense of security that a physical investment can offer, and remember that prospects of a high yield always go hand in hand with high risk. To claim otherwise is false and may be a sign of fraud.
In what follows, we provide more information about these types of offers of alternative investment products. If you wish to verify whether an offer is subject to the the supervision of the FSMA, please feel free to contact us.
1. How do these frauds get started?
Would-be investors are usually contacted unsolicited (via 'cold calling' or email) by a person or company that offers them an investment in an asset presented as an alternative to traditional investment products. Sometimes, would-be investors are attracted by online advertisements.
The asset is offered as an alternative for investing one's capital, and is accompanied by promises of high yields. The information presented is one-sided, however, omitting to mention or downplaying the risks of loss
Moreover, both the market and the prices offered are often obscure, and it is very difficult for the would-be investor to verify whether they are paying the correct price for the investment
Frequently the company suggests that the assets be stored abroad. In that case, the investor cannot easily verify whether the product has in fact been delivered.
2. What problems are encountered by victims of these frauds?
Complaints made by consumers who consider they have sustained losses due to such offers are varied. In what follows, we summarize a number of them:
- the object was bought for a sum well above market price, and thus they were misled as to the value of the asset purchased;
- it seems impossible to resell the asset acquired;
- the investor has heard nothing more from the company and therefore is never able either to obtain the assets purchased (provided, of course, that a real transaction took place, which is not always certain) or to recover the money invested;
- finally, many companies active in this sector soon go bankrupt or into liquidation. Once again, the investor's chance of recovering his or her investment is slim.
3. To go further...
If you would like more information about the legislation that may apply to such offers of alternative investment products, please read the FSMA’s Communication of 13 November 2014 addressed to companies that distribute investments in movable or immovable goods. If you have any further questions, you can always ask us via the contact form.