This article examines what happened when a foreign currency trading investment opportunity failed to work out for investors; and the steps you can take to prevent Forex trading scams happening to you.
What is foreign currency trading?
Foreign currency trading, sometimes referred to as Forex trading is a legitimate business activity conducted by investment institutions, banks, and money managers as a way of managing financial risk or hedging currency exposure.
For example, a UK company, that incurs all its overheads in sterling but is selling its products to German and Spanish customers (and receiving payment in Euros) is exposed to a potential Forex loss.
Ideally, the company should take steps to manage the risk that the Euros they receive will be less than expected when converted into sterling. As a consequence, the revenue received may not be sufficient to cover overheads.
Foreign currency trading is also a way for say hedge funds, for example, to speculate on the direction of the currency markets with a view to making money on movements between currencies of different countries.
Forex trading scams: the set-up
When you have a relatively complex, sophisticated business activity with tens of millions of pounds flowing around the financial system on a daily basis, then invariably this will attract unscrupulous individuals.
These individuals masquerade as specialist Forex trading firms, promising impressive returns to investors but are nothing more than Forex trading scams; in effect, another form of investment fraud.
One business at the centre of a suspected Forex trading scam is Hudspiths based in Swindon, UK. However, at the time of writing they are not being investigated by any UK Enforcement Agency.
What was the investment proposition?
Hudspiths operated an unregulated Forex scheme which was launched in 2015 and promised returns to investors of 5% per month, in addition to a further 2% per month to be paid to its introducers. It attracted over 100 individuals who are believed to have invested in excess of £50 million in the scheme.
What happened next?
Hudspiths traded – apparently without any obvious issues – until 2017 and in late 2018 it stopped making payments to investors. In June 2019, the company filed a winding-up petition and appointed UHY Hacker Young as voluntary liquidators.
Following their appointment, UHY filed a Statement of Affairs (basically a summary of all the known assets and liabilities of the company) at Companies House. This document showed that Hudspiths had net realisable assets of just over £1 million and total liabilities (money owed primarily to investors) of £41 million; a shortfall of £40 million.
In the meantime, Robert Amey, the barrister acting for a group of investors (now creditors) made a High Court application to file for compulsory liquidation and have an official court approved receiver appointed. This appointment was confirmed in August 2019.
Where’s the money gone?
At the present time, it is not known how a shortfall of £40 million has arisen and it is for this reason that investors fought to have an official court approved receiver appointed, so that a proper, independent investigation could be carried out.
While Robert Amey has expressed concerns that the company had been operated as a fraudulent Ponzi scheme, a well-known scam, where investment returns paid to early-stage investors are funded by money paid-in by later investors. The company has denied this allegation.
What was the outcome for investors?
Until the Official Receiver conducts its investigation, it is not known whether any criminal or fraudulent activity has taken place and whether the investors have recourse to the financial services compensation scheme.
What was the outcome for the promoters?
The directors, Lance Hudspith and Karl Lubieniecki are not being investigated by any of the Enforcement Agencies so currently have no case to answer.
How to deal with Forex trading scams?
- As with any investment scam, be very suspicious of any unsolicited approaches ‘out of the blue’ by phone, email, letter or even someone at an exhibition.
- Scammers increasingly use social media ads, online testimonials and fake endorsements from well-known individuals to target victims so be alert to this tactic when clicking through to read more.
- Check that the operator of the Foreign Currency Trading investment scheme is authorised by the Financial Conduct Authority (FCA).
- Check the FCA Register or call the FCA’s consumer helpline if you have any doubts.
- Check Companies House records to learn more about the company and the directors’ backgrounds.
- Request independent evidence of their Forex trading track record performance.
- Remember online testimonials can be faked, so obtain your own references (if possible).
- Be very suspicious of promoters offering unusually high returns (as a rule of thumb returns over 6% are probably too good to be true).
- Never transfer any money on the basis of a conversation or a meeting.
- If you do decide to go ahead and invest, always seek advice from an independent financial adviser regulated by the FCA before you transfer any money.
