How to Spot a Fake Investor (How LEI Can Help)


Can investors be fake?

LOL, my friend, you definitely haven’t been searching online.

When you’re zealous about finding anything online, it’s then you’ll realize there’s literally a fake version of everything.

Fake gadgets… Fake items… Fake profiles… Fake clothes…. And even fake people (investors). The internet houses all of them.

I bet the question you’re asking now is, why would an investor be unreal? After all, investors are the ones putting money on the table; why on earth would someone pretend to be that?

Well, you’ll be shocked to hear the extent people go to live a lie. And, in some cases, to defraud others, too. 

Can Investors Be Fake?

The answer is a big fat YES. Over and again, we’ve seen instances of investors that are not genuine. So, yes, investors can be fake.

Thankfully, financial regulation concepts like legal entity identifier (LEI Number) are now doing a good job of exposing them.

LEI Number? What’s that again? And how does it relate to the subject of ingenuine investors?

What is LEI?

LEI Number is a global registration number designed to identify entities in the financial space.

Technically, it is a 20-character alphanumeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). 

Since its conception, LEI registration has helped mitigate issues involving fraud, money laundering, scam, and impersonation in the finance and business industry.

With legal entity identifiers now around, individuals can no longer claim to be who they are, and corporate bodies cannot claim to have what they don’t.

How Does LEI Help to Tackle the Issue of Fake Investors? 

A reputable investor should have at least one business establishment you can trace their name to. If you can’t find your investor’s name on any business’ LEI Number search, you should beware.

Most investors have invested in lots of businesses, and many a time, they get rewarded with equities in these businesses.

As such, they take up credible positions in these organizations. When you search for an investor’s name on the GLEIF site, you should find businesses that are linked to them.

If you can’t trace any company’s legal entity identifier to an investor’s name, beware. It can signify that that investor isn’t all they claim to be.

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Why Would an Investor Be Ingenuine?

Because people are complicated like that. 

Here are some of the reasons why there are fake investors out there:

1. To Chase Clout: 

Unfortunately, there are still people out there who live a lie. That is particularly true of many on social media. Just so their LinkedIn and Instagram profile could look ‘lit,’ someone would claim to be what they’re not.

2. To Impersonate the Real Person:

 Fraudsters have no problem cloning the website or social media profile of a person to defraud their friends, family, clients, and prospective associates.

3. To Defraud People:

Any business owner will be happy to pay just a thousand dollars to secure a $100k investment deal. Fake investors know this – they know you’re desperate.

And so, they want to exploit your desperation.

4. Steal Vital Business Information: 

Anyone will be happy to open up and share classified information with someone they consider as being a business partner.

Fake investors would come into your business as though they want to invest. Then after they’ve gathered all the information they need, they just vanish into thin air.

5. To Steal Your Ideas: 

This is particularly common amongst startups. A fake investor would approach you as though they’re interested in pouring money into your project so that you can open up the entire project scope to them.

And the next thing you know, they’ve already created the solution you discussed.

How to Spot a Fake Investor

Spotting a fake investor is not hard at all. You just need to pay attention to the signs. YES, the signs are always there. 

1. Can’t Find the Name or Details of The Investor on Any Credible Online Source

Whether you learn about an investor on social media or through someone, the first place to check their credibility is Google.

You should search for the investor’s name to see whether any major milestones have been achieved.

Logically, if someone has invested in other brands or has a long history of entrepreneurial endeavors, you should find information backing that up online.

If you can’t find any of such information, beware. 

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2. Can’t Find Good Information About Them when You Search the GLEIF Site

In the course of discussing with an investor, you can stylishly ask if they have businesses of their own. If they say yes, ask for the name of this company and jot it somewhere.

When you’re done talking to them, visit the GLEIF site and look up the business name.

If they’re indeed the real owner of the business, or if they’re connected in any way, this legal entity identifier system will tell you. 

3. Not Sure if Their Company Has an LEI Number 

A credible investor should understand why you may be worried about their legitimacy and all.

As such, they should be willing to do anything it takes to validate their identity. Even if it means answering certain sensitive questions.

In the middle of your conversation with the investor, you can chip in the subject of legal entity identifiers to see their reaction.

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If it’s something they know about or have an existing arrangement for, they’ll gladly mention it here. 

But if they don’t, you can ask them outright.

“So, for your business XYZ corporations, why haven’t you considered getting a legal entity identifier number for it?”

That’s a good example of an innocent question – one that doesn’t feel like you’re prying.

4. You Can’t Confirm the Legitimacy of Their Business

Sometimes in order to catch a liar, you just need to find the gap in their claims. That is, areas where the dots don’t match.

Still on the subject of using LEIs to spot a fake investor. Simply ask them if they have businesses of their own. If they say yes, jot down the business name.

Now, when you’re done talking to them, look up this business name on the internet. I mean, check out their company website and social media handles. 

What exactly are you looking for, you wonder? Anything at all that can corroborate everything the investor told you.

Say, he told you he’s the CEO of the company. You want to check the company’s About US page and other social media pages to see whether this is true.

Now, say you confirm that it’s true what they told you, what next? You should return to the GLEIF site to confirm the LEI application status of the company.

If you can’t find a good LEI Number basis on the GLEIF site, ask them why they haven’t registered for legal entity identifiers.

5. They Contact You Using Contrasting Handles

Does the investor have different names on various social channels? Maybe they’re chatting with you under one profile name on LinkedIn.

And then, when you reach them on Twitter, they come off with a different profile handle altogether. Beware. Something is likely fishy.

6. They Don’t Want to Transfer Funds Using the Usual Channels

Only unscrupulous investors will tell you they don’t like to transfer funds using the banks.

A credible investor will definitely want to use a notable bank to perform the transfer for reference purposes.

When you start hearing stuff like, “oh sorry, I prefer to use this online banking app instead.” Beware.

7. They’re Asking You to Pay a Certain Fee Before Funding Your Business

No legit investor will ask you to pay a certain fee to process an investment in your business.

Think about it, what could someone who’s probably worth thousands or millions of dollars possibly want with your $500 application fee?

Only a shady investor will ask for such. Beware.

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