What is asset recovery and how you can be scammed

As part of an ongoing series of articles looking at investment fraud cases or allegations of financial crime, this article explains asset recovery scams and the steps you can take to prevent it happening to you. 

What is asset recovery? 

Asset recovery is a genuine business activity that involves the tracing, identification and recovery of assets that have somehow disappeared. Assets can disappear by simply being stolen or fraudulently misappropriated and eventually liquidated in some way.

Alternatively, assets can be hidden away in some offshore location or transferred into a series of anonymous trusts. Assets can be ‘disappeared’ for many reasons but the motivation is usually to place the assets in question beyond the reach of people to whom money is owed (creditors).

For example, where a judgement debt has been issued following a commercial court case or arbitration award and the loser refuses to pay up, or argue they lack the means to do so, then an asset recovery agency can be appointed.

The agency’s role is to track down, identify and recover any assets associated with that individual or legal entity in order to settle the debt. 

Asset recovery is also the process by which the Official Receiver (or liquidator) appointed to wind-up an insolvent (bankrupt) entity will dispose of any assets (equipment, vehicles, stock etc) in order to generate cash to repay creditors who have been left out of pocket by the collapse of the business.  

Asset recovery scams  

The fact that there is a genuine business activity known as asset recovery creates a ‘platform’ for investment scammers to exploit this opportunity.

Asset recovery scams usually involve an individual or agency offering to retrieve money you have lost from a fraudulent investment scheme or failed company, in return for an up-front fee.

But instead of recovering the money, they retain the fee and disappear.  There are two possible scenarios:

1. Liquidation scam

Asset recovery scams can arise in a number of different ways. One such example is scammers exploiting a lack of knowledge around how the liquidation of an insolvent business works. 

The scammer takes advantage of the fact that investors or creditors in an insolvent company simply do not understand the  process of how funds are returned to them, once the liquidation process has been finalised. 

A recent case handled by the Insolvency Service highlights the risks. They issued a warning to creditors and investors in a company called Essex and London Properties Limited (the insolvent business) that scammers were falsely claiming that they could recover funds from the liquidation process.  

The scammers in this case claimed to be either acting with the co-operation of the Official Receiver or on behalf of the Insolvency Service and that they could assist in the recovery of investor losses for a fee. Of course, they could not, plus the Official Receiver would never offer to recover money for a fee anyway. 

2. Compensation scam

Another example of where a fraudulent asset recovery scheme could be used is following the collapse of an investment fund.

If the investment scheme was authorised and regulated by the Financial Conduct Authority (FCA) then compensation may be payable through the Financial Services Compensation Scheme (FSCS) to those investors who have lost money. 

Here, scammers will exploit the uncertainty around how and when investors could receive compensation for their lost investment and will approach investors offering to recover losses from the FSCS for an up-front fee. 

Again, this is probably a scam and it is quite likely that you will never see that fee again. In any event, investors could quite easily lodge a claim directly with the FSCS themselves and should not need the help of any external agency.  

However, it should be pointed out that there are legitimate agencies who will act on behalf of investors seeking compensation and these agencies will only take a fee once the compensation has been secured. Their fees will probably be based on a percentage of the recovered amount and can be quite steep (up to 25%).

Equally, there are reputable law firms you can instruct to act on your behalf to recover losses and again fees will be legitimately payable for the work they undertake. 

How to avoid asset recovery scams?

1. As with any financial or investment scam, be very suspicious of unsolicited approaches ‘out of the blue’ by phone, email or letter. 
2. Scammers increasingly use social media ads, online testimonials and fake endorsements to target victims so be alert to this potential risk when clicking through to read more. 
3. If you are a creditor or investor in an insolvent company and are unsure about the legitimacy of the individual or agency that has approached you then contact the Official Receiver separately to check their credentials. 
4. The Official Receiver (not an agency acting on their behalf) will contact you directly to update you on progress of the liquidation of the company and advise you on any pay-out you may be entitled to. 
5. The Official Receiver (or liquidator) will never contact investors or creditors offering to recover their money for a fee or indeed recommend another organisation, individual or agency offering to do so.  
6. Be very suspicious of any asset recovery agency requesting up-front fees before they will process your recovery claim. If they are legitimate, then will take their fee from any compensation recovered on your behalf. 
7. If you believe you have been approached by a scammer, then contact the Financial Conduct Authority’s Consumer Helpline.