Spanish Regulator IFA Guidance“CHIRINGUITOS” means entities offering and providing pensions/investment and advisory services without being authorized to do so. They are dangerous because in most cases the apparent provision of such services is just a cover for fooling victims into believing they are making a highly profitable investment. It is important to understand that high yields offered are often too good to be true: the bait to con ill-informed (naïve) investors to hand over their savings or pensions. When exposed, the “CHIRINGUITOS” simply disappear or change their names. They are simply swindlers.
Companies authorized to provide investment services (brokers, portfolio managers, IFAs, banks etc.) are subject to the rules governing the securities markets and strict controls by the supervisory bodies (CNMV and BanK of Spain).  Only CNMV-registered companies are authorized to provide pension/investment services, after demonstrating compliance with specific legal requirements and standards.
CHIRINGUITOS are not attached to the Investment Guarantee Fund, so that investors are not protected in the event of insolvency of the entity (authorized entities contribute to these protection funds through compulsory subscriptions).
There is no particular type of victim because often scams are very elaborate.  Victims can be small businesses, individuals or professionals who fall for credible-sounding false promises of quick wealth and easy gains.
In short, to trust a CHIRINGUITO is a sure way to lose capital, with no investor protection under the laws.

How CHIRINGUITOS work

The channels used by scammers and boiler rooms to contact potential victims are no different from those that can be used legally by legitimate entities i.e. telephone, letters, e-mail, web pages etc.  The difference lies in the way the scammers use these channels, the type of messages they convey and the general approach to achieving their goals.
The CHIRINGUITOS use databases (often obtained fraudulently) of people who, for example, have purchased a particular financial product, publication – or on occasion answered a survey about their tastes, interests and financial situation.

Phone calls

Cold calling is one of the CHIRINGUITOS’ favourite contact methods.  It allows them to directly exercise psychological pressure techniques.  Cold calling is by definition unexpected but is legal, and in fact authorized entities often use it as part of their promotional campaigns.  However, in the case of  authorized entities, it is normal practice to call existing customers, so people know their data has been obtained legitimately.  If the answer to what is being offered is “no” this is accepted politely. By contrast, the CHIRINGUITOS do not usually settle for a NO.

Mail

High-quality leaflets which are sophisticated, inviting and promising.  These often request the recipients to contact them by filling out a form, calling by phone or by visiting their website.

Internet, e-mail

The great success of the Internet as a direct marketing tool allows advertisers to access a wide mass of recipients more cheaply than traditional media (phone, mail). This fact, coupled with the possibility of anonymity, has led to abuse of the medium, such as spam or indiscriminate emailing of unsolicited products bordering on illegality.  Recipient lists are often obtained unlawfully, in breach of data protection rules. Also, the address of origin of the messages are usually false, and also the subject headings are deliberately misleading.  Spanish law decrees that commercial communications should be identified as such and prohibits sending emails unless they have previously been requested or expressly authorized by the recipient. No serious company would ever spam the public, as that would be invading consumer privacy.
When it comes to financial products and services, we must be very cautious about offers and information received, even if they have been requested or consented to. Financial fraud on the Internet can be carried out by more sophisticated means. Spam is just one of the possible mechanisms, because the Internet offers various tools to disseminate potentially fraudulent or questionable deals: boards, newsgroups, chats, or even sophisticated web pages.

Phishing

Another danger is “phishing”: emails that appear to come from legitimate financial institutions, which request personal passwords. These messages often lead to a website that imitates an authentic entity (although it may have spelling mistakes), which fools people into entering their personal data or passwords.

Pharming

Even more sophisticated is “pharming”: people who visit fraudulently-cloned websites can have their personal, confidential data collected by criminals.  Never surrender personal or confidential business information to unknown persons. If a request for personal data appears legitimate, use an established phone number to double check. Also, don’t access websites via links, but type in the full URL and, if possible, install antiphishing and antipharming tools.

Adverts

CHIRINGUITOS also advertise in newspapers, magazines or other media (such as television teletext) to offer opportunities which are much more attractive than traditional investments and promising to provide attractive opportunities (which, of course, are not so in reality).

 Personal referrals

It is common for people to make their investment decisions based on recommendations from acquaintances or relatives whom they trust. Knowing this, sometimes the CHIRINGUITOS pay great benefits to the first customers, using their own money or from other investors; this is what is called a Ponzi scheme. In fact, those investors who unwittingly act as bait are only going to get limited performance at first and successive investments begin to generate losses. Then, the company will not respond to requests for repayment of capital and finally disappear with all the money invested.
Personalized investment recommendations should always be made by a professional entity authorized to do so, because what is good for one investor may not be for another, depending on their different personal and financial circumstances.

Persuasion techniques

The list of boiler-room persuasion techniques cannot be exhaustive, since the arguments and methods are increasingly sophisticated. Therefore it is important to stay alert to any financial offer that is not from a known, registered party.

Accurate predictions

A simple but very effective technique – using a large number of calls to impress potential victims with their knowledge of financial markets – half of which confidently predict the rise of a certain investment value and the other half predicting decrease of the same value. In the following days this exercise is repeated several time.  Those targets who were given a series of successful predictions are contacted again.  Now convinced of the infallibility of a company that has hit all its forecasts for several consecutive days, these people are willing to surrender their savings to the CHIRINGUITOS.

Appearance of respectability and success

CHIRINGUITOS know it is essential to look respectable and seem like financial market experts. So they dress smartly and eleganly and rent luxury offices. Sometimes it is difficult to get an appointment to meet them because they want to give the impression of being busy and in high demand.

Incomprehensible explanations and use of technical jargon

CHIRINGUITOS promoting fraudulent investments talk with confidence and mastery of technicalities that make them look like experts on the subject. In fact, the aim is that the potential victim does not understand anything and chooses to trust those who seem to be experts who know what they are talking about.

Offering large profits with little risk

CHIRINGUITOS promise much higher returns than can be obtained from a conventional investment with minimal risk. A basic principle that all investors should bear in mind is that profitability and risk go together inseparably. The possibility of obtaining high yields always involves taking high risks. Be wary of any offer that ensures high returns without risk.

Insistence on an immediate decision

Urgency is a major factor, not only because they want to get their hands on your money asap and with the least possible effort, but because they know that if the investor has time to think properly about the offer, or seeks professional and reliable advice, he will probably reject the offer. So, CHIRINGUITOS use tricks aimed at achieving an immediate decision to try to convince the victim that they are offering a unique opportunity that will expire soon. Investors should be aware that this is not true: there is always time to assess the characteristics of a financial offer and to make sure it is suitable.

Psychological pressure

The conversation, either by phone or by any other means, usually begins in a cordial fashion, but if the targeted victim shows some potential resistance the scammer can become more aggressive. This constitutes a fundamental difference between the CHIRINGUITOS and the authorized entities, who always respect a prospect’s right to not be interested.

Although psychological pressure can take many forms, here are some common tricks:

  • Not taking no for an answer
  • Being repeatedly insistent
  • Becoming increasingly aggressive
  • Questioning the intelligence or ability of the investor to make a decision
  • Conveying the idea they are doing the victim a big favor by offering exceptional gains
  • Making it clear it would be absurd to question the promises made
  • Using warnings such as: “you’ll regret it if you don’t go ahead” or “you’ll never get rich if you ignore my advice”

When to be suspicious of a financial offer

Most of the techniques used by CHIRINGUITOS would not be used by authorized firms, since they are subject to strict rules of conduct. Authorized firms are required to keep customers properly informed and to provide information to investors fairly and clearly. In particular, they must provide information about their services and financial instruments, so that the client knows the nature and risks of the investment service that it is going to provide and the characteristics and risks of financial instruments offered.
It is therefore important to understand the difference between people or entities who are authorized to provide investment services and those who only intend to carry out a scam.  When an authorized firm sells a product, the customer must request information on their knowledge and experience in this product, in order to assess for himself whether it is suitable for him. This is called a suitability test.
When a broker is going to provide investment advice or manage an investment portfolio, in addition to asking about the client’s investment knowledge and experience, he should request additional information such as the financial situation and investment objectives of the client (risk profile, time-frame etc.) – as proper financial advice is always personalized.
The boiler room scammers’ only aim is to attract money from their victims, so they do not care about their clients’ expertise in investments and financial circumstances – all they need to know is that they are willing to invest.

The contact must have been requested by the prospect

Authorised entities have to work with personal data in a legally-compliant manner, and the client must have given them permission to make commercial offers. But if an entity of which we have never heard contacted us to offer an investment, you have to take extra precautions because this is probably a scam.

Authorized entities never pressurise customers

Any investment should be approached with sufficient knowledge of the characteristics and risks of the product.  It is important to do thorough research before committing. The investor needs time to decide and get answers to all their questions. However, scammers pressure the victim to get an immediate yes, without giving them a chance to reflect.

How to protect yourself against a possible CHIRINGUITO

Promises of exceptional returns without risk should make us suspicious immediately.  Never trust an unknown entity until they have been able to verify that they are properly authorized to provide investment services.  The investor has available the following protection mechanisms which should always be used before handing over capital:

  1. Request information from the supervisory body, in this case the CNMV
  2. Identify any peculiarities about the investment proposal
  3. Demand concrete answers and make sure they are fully understood

Ask for information from the CNMV

The Investor Assistance Office of the CNMV is at your disposal to inform you whether entities are authorised to provide investment services or not. If you have been advised to deal with a company that has been referred/recommended, you should call the CNMV for assurance that it is an entity which is authorized, registered and supervised. Public records are also available through the website of the CNMV (www.cnmv.es). Investors can also visit the website of the International Organization of Securities Commissions IOSCO, (www.iosco.org) where there are warnings and advice available.

The CNMV regularly issues warnings about entities which are suspected of providing investment services without authorization. These warnings may come from the CNMV (when it is aware of the existence of possible CHIRINGUITOS through inquiries or complaints from investors) or which have been supplied by a foreign regulator (bear in mind that CHIRINGUITOS may operate their fraudulent activities in more than one country).

To make it easier for investors to identify entities operating without authorization, the website of the CNMV provides a search engine that can locate them quickly and easily. Entities that have not been placed on the warning list may not yet have been detected by the supervisory bodies. It is important to remember that although most of the victims of fraud contact the CNMV after losing their money, it is always preferable and much less expensive to conduct this consultation in advance, i.e. before handing any funds over.

Identify the characteristics of the proposal

Sometimes, the activities of the CHIRINGUITOS are masked under the guise of consulting services, in which in the client is charged a high commission on their investment (which also often adds to the total loss of the capital). However, all entities making personalized investment advice must be registered on a public registry, so that potential victims can see whether or not a firm or person is authorized to provide this service.

Generally, CHIRINGUITOS require funds to be transferred to a current account (sometimes abroad) on behalf of a non-Spanish company. In general, any offshore entities are not authorised or regulated. The investments tend to be complex financial products in unknown foreign markets.

There are often entities or websites that offer investors the opportunity to invest in foreign exchange derivative products (CFD, futures, rolling spot contracts etc.).  The forex market (foreign exchange) is very complex, so any access to this should only be done by authorized entities.

Scammers are often reluctant to provide updated information or respond to questions from the investor, although they promise that they are offering a relationship based on mutual trust. But remember that trust is something that must be earned, the more so when it comes to giving your money to organizations or persons who have failed to establish their legality, professional integrity or solvency.
Insist that any adviser provides clear answers to questions. The investor not only has the right but also the duty to know in advance all relevant aspects of the proposed investment. One of the main differences between authorized financial institutions and CHIRINGUITOS is that the former invite investors to ask questions and then provide all necessary answers and information, while the scammers try to make their targets feel ignorant, and to trust them blindly.

Below are some questions to ask the advisers to see whether they are CHIRINGUITOS. In fact, many of these questions, particularly those relating to the characteristics and risks of the investment should also be made when dealing with authorized entities. The difference is that scammers will be unwilling to provide clear answers:

    1. How did you get my name and contact details?
    2. Why are you making contact with me?
    3. Is your firm registered with the CNMV and the Bank of Spain?
    4. Is your firm supervised by any public authority?
    5. Are you a member of any investment protection/guarantee scheme?
    6. How long have you been with the firm?
    7. What is your professional experience?
    8. Is there any financial entity which can give you or your firm a reference?
    9. Does the investment you are proposing match my objectives and is it suitable for me?
    10. What are the risks of this investment? How much could I lose and under what circumstances?
    11. How would I profit from this investment?
    12. What has to happen for the value of this investment to increase? (i.e. interest rate or stock market rises?)
    13. For how long do I need to keep the investment?
    14. What is the liquidity of the investment i.e. how and under what conditions can I get my capital back if I need it?
    15. What commissions are payable? How are they calculated?  Can I have a copy of the fees/rates?
    16. Can I have a copy of the documents/contracts that I have to sign (to read carefully before signing them)?
    17. Is there any official document regarding the investment at the CNMV regulator? Can I see it?
    18. Can you give me a written detailed explanation of the investment to read/digest carefully and a second opinion?
    19. Can we discuss the proposed investment with my lawyer or with a trusted financial expert?
    20. If anything goes wrong with my investment, what avenues of redress or compensation do I have?

 

Just asking these questions is not enough.  CHIRINGUITOS are expert at being persuasive and evading answering questions with plausible excuses.  This is why it is essential to check out any person, firm or investment with the CNMV before handing over any funds.