A reader recently asked us for our views on a new P2P investment site they had discovered. They had visited the site after clicking on a Facebook advertisement offering high levels of returns. We won’t mention the site, to avoid giving it publicity, but in our view the site is clearly a sophisticated scam. There are likely to be many more out there. Here are the reasons why we believed the site was fake and a scam – and what to look out for.
Returns offered are not realistic
The site we reviewed was offering interest rates of up to 30%, with a buyback guarantee provided by the site. There’s an old saying that ‘if it seems too good to be true, it probably is’. Unrealistic returns, accompanied with buyback guarantees, significantly increases the risk that the promised returns are not genuine.
Site converts deposits into a coin / crypto-currency
This is one of the biggest and most obvious ‘red flags’ to us. There is no reason for a site to convert your investment into any kind of crypto-currency. Forget all the marketing about the benefits of blockchain – if there is any mention of a coin or cryptocurrency being used on the site, stay well clear.
Non-standard payment methods accepted
We noticed that the site accepted deposits by credit card payment. Credit cards are not accepted by legitimate sites, as they are too expensive to process and there is a risk of a transaction being reversed. Acceptance of payment by credit card, bitcoin, Western Union or any methods other than bank transfer (or via legitimate sites such as CurrencyFair or Transferwise) are an indication that a site may be fraudulent.
Loans are non-standard & don’t make sense
The site we reviewed listed several loans that were non-standard and likely fraudulent. For example, legitimate P2P sites do not provide subordinated loans to fund companies operating bitcoin mining rigs. They also do not provide real estate development loans with terms of only 3 months (it takes much longer than this to complete and refinance/sell a development). Beware of loans with extremely unusual collaterals, or have features that differ significantly from other sites.
Insufficient information about the company behind the site
It’s important to know which company is operating a P2P investment site. That means the full company name, the company registration number, and the country in which it is registered. In some countries, such as the UK, all sites must be registered with a regulator and this registration can be confirmed. We think it is important to know more than just the basic details of the company. Who are the shareholders? How big is it? Is it making or losing money? How much equity does it have? Don’t be afraid to get answers to these questions first.
Management are not well known and can’t be verified
How well known are the management team behind the site? Do they appear at conferences and in published interviews? Are they listed on Linkedin? Do they have relevant experience to run the site? In the case of the site we reviewed, the Linkedin profiles of the claimed management team were very weak, and listed previous roles that were not relevant, such as working at a small fishing company.
Business address is not listed, does not exist or is unlikely to be true
The site we reviewed listed as their office address one of the most prominent and expensive office buildings in the city they were based. While this may seem to be impressive, in fact we consider this a red flag as most P2P sites do not operate out of office locations like this. Other ‘red flags’ include failing to list an address, or providing addresses that do not exist.
Heavy use of social media advertising
As a rule we would recommend avoiding visiting any sites that you discover from advertisements on social media sites such as Facebook. Advertisements on sites such as this allow scam sites to operate ‘below the radar’ and attract visitors without bringing too much attention to themselves.
no coverage on independent sites such as explore p2p
If a P2P investment site has a very weak ‘web presence’, and cannot be found mentioned on forums or specialist sites such as Explore P2P, we would recommend staying clear.
Site does not reply to questions
Most P2P investment sites provide very good levels of customer service and provide answers to questions from potential investors extremely quickly. If you get no response (as in our case), or an inadequate response to any questions you have prior to investing, stay clear.