7 Lessons to Protect Yourself From P2P Scams

S4F Risk Management @ Savings4Freedom
Greed and herd mentality can go a long way to blur our capacity to detect P2P investment scams. Learn on how to avoid P2P investment frauds with prior lessons.

Learning from the Kuetzal & Envestio Costly Lessons

Every single one of us wants their investments to be safe, but greed and herd mentality can go a long way to blur our capacity to detect an investment scam. The goal of this article is to compile information on how to detect a P2P investment fraud, based on common sense and the lessons learned from the Kuetzal & Envestio criminal cases.

People. Who are they? Can you verify them?

From the very beginning it should be clear who are the people behind a P2P Platform. Who are they? What can you find about them in public and verifiable sources? Is their experience relevant to run a P2P Platform?

Looking back to Kuetzal, it was clear the lack of transparency and experience from the team. Young and inexperienced CEO and hidden shareholder structure was a combination for disaster. Envestio sudden change of management to a complete invisible owner also showed how investors are vulnerable when they are already invested and conditions change. Keep this idea in mind when evaluating P2P Platform risks.

Company Background. Structure & Network

It is crucial to learn the structure behind a P2P Platform. Check the company name online, verify the national registration number, make sure to know who are the shareholders and any relations with other companies or organizations. Can you find financial records? Can you confirm the actual company capital? Are you able to assess the business model and judge if the P2P Platform is capable to survive complex market conditions? Even the simple issue of not being able to visit the registered address, or not being able to know where the actual office location is or where the main operations happen is a significant issue to consider. Make sure you get answers prior to invest.

Looking back to Kuetzal & Envestio, it was possible to find a confusion of companies with no relevant capital behind them with multiple cross-relations with other companies with the same shareholders or closed connections… office addresses registered in a residential areas… all in a strange and non-transparent way.

Marketing over Finance & Tech

Now that you are aware of the people and structure behind the P2P Platform, evaluate from a common sense perspective how you perceive the marketing they do. Check for any hint that demonstrates more focus on Marketing & Social Media coverage than actual financial due diligence of loans or Loan Originators management. Take special attention when you read highly aggressive marketing language, especially saying there is no risk or that you have “guarantees”.

Also important to consider is the maturity and technical quality of the P2P Platform. Kuetzal was simply a bad development that didn’t change since the very beginning. Looking back, everything in the technical evaluation of Kuetzal was a signal of bad intentions. Criticize and don’t accept excuses.

Customer Service & Communication

A key aspect of P2P Platforms success is the quality of customer service & how they handle communications with investors. Can you contact them by phone? Can you get a quick answer over social media? They should be able to provide you with answers, even for uncomfortable questions. If you don’t get a response or if the answers you get lack any meaningful content, make sure to evaluate more closely.

Be aware of the way the P2P platform communicates in Social Media, in investor groups and who are the stakeholders that give voice to such communications. In the same way, verify any information provided on the website, making sure that they don’t overuse highly technical and complicated information or include incomplete statistics, especially compared to other P2P Platforms.

Envestio kept a good customer service until the very end, while Kuetzal was a nightmare. Good communication it’s a positive aspect, but not a guarantee of anything.

Loans that don’t make sense

When you start exploring the loans offer, what is your overall opinion? Based on what you discover about the P2P Platform team, are they capable of performing a proper due diligence on the variety of projects presented? Are you able to verify information on borrowers? Retrieve agreements and contracts?

Again, this is direct application of common sense: there are no way a small real estate development project could be executed from end-to-end in less than 3 months, in the same way that a P2P Platform cannot evaluate with the necessary consideration loans from very different business areas. Check the companies behind the loan requests. Check the Loan Originators behind a loan portfolio. Trust no information that you are not capable of verifying directly.

No need to remind that the Kuetzal & Envestio collapse started with due diligence and research that proved specific loans to be fake.

Bank Accounts & Payment Methods

A key aspect for any P2P Platform success is the appropriate and reliable reception of funds from and to investors. Among the bank regulations that bigger implications have in the lending industry is the one promoting anti-money laundering (AML) practices. If a P2P Platform is constantly changing bank provider, that is a significant aspect to consider. If they use a bank account from a country different from the one they operate, it should raise questions. If the bank account is based on a offshore, make sure to avoid the platform entirely.

Kuetzal changed multiple times their bank provider. Something was wrong with the way they operated to promote so many changes. The last registered bank account was based in Malta, a known European offshore. All the indications of problem were there.

Non Realistic Returns

Make the math. Interest rates of up to 30%, with a buyback guarantee provided by the site can only lead to one end. A bad one: you risk 100% of your money. Remember that a buyback guarantee is only as good as the organization that provides it. The hard true, learned in the most painful way is that unrealistic returns combined with buyback guarantees, significantly increase the risk that the promised returns are not genuine or at the minimum sustainable. 

Also important to evaluate is the collateral provided to ensure the loans. Who is the beneficiary? What is the process in place to collect in case of default? Who takes charge of the debt collection process? Is all the necessary documentation available to support your claim? Take particular interest in the P2P Platform financial track record. Verify any claims of no bad debts, despite a long record. Check the sustainability and financial muscle of the entities responsible for the buyback guarantee, and trust noting that you can’t verify yourself.

Neither Kuetzal or Envestio made available agreements and contracts related to individual loans. No information was available regarding collateral or how such process would happen.

Taking into consideration all the aspects described above will not keep your investments safe, but will help avoid mistakes that I did with my own portfolio. It’s too late for me, but learn from my errors and do your best to study all P2P Platforms you consider to invest in in order to eliminate the possibility of loosing your savings.

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