The Rare Earth Metal Scams

The financial uncertainty that the pandemic has created has allowed the scammers to run fictitious investment projects. Earlier, many firms on the warning list posted ads on the search engines and appeared at the top with expressions like the "best bond opportunity" or "best-fixed rate profits," such adverts remained for weeks on the top of the search engines. 

These sites adopt methods like emails, search engines and other social media techniques to contact the users. Such sites may appear on a legitimate comparison /review site; one can also find them in the FCA warning list. 

Rare earth elements are mineral elements in electronics like mobile phones, turbines and batteries. Some of these elements are rare and expensive, but many are abundant in the earth's crust. These elements are not sold in the purest form and are often offered as a natural compound. 

The scammers sell the metals as investment opportunities, calling them a great opportunity in alternative assets and insisting there is a huge demand for them in the market. They predict very high returns on investment by saying that the demand will increase in China and the supply will fall due to the unavailability of resources. 

They claim that one can make huge money by entering the "trading agreement/contract" where you structure to pay a small amount of total cost and seek arrangements for some loan to pay the full price. However, the allocated funds are often not used to get the physical metal. 

Furthermore, the supplier does not provide options to store the product bought by the client in an independent bank or storage facility. 

The buyers of rare earth may not get any physical product in return for the investment. The suppliers often provide a very complex mechanism of buying and storage. The firms claim the metals are stored/held by the seller in their storage units against the client's purchases for a minimum charge for the prescribed duration. 

However, they do not deliver the promised profits on the sale of the metal and often grab a portion of the investment as commission.
 
The agreement with the firm may not identify the physical metal location, and sometimes, they claim they have delivered the physical metal to a licensed overseas storage facility – that may be difficult to verify.

The client is told that the investment is profitable because China's earth elements supply will fall. Still, demand will increase, leading to increased international demand and higher sales profits. 

While it can be very difficult to track the price of such elements as sold in private markets instead of exchanges, it can be very difficult to check if you are paying the right price for them or not. 

On the contrary, China has huge mineral resources, and the government is trying to boost the production of all rare metals through its manufacturing sector. So, the price may not increase in the international markets. 

Moreover, companies that buy such metals often buy them in large quantities, making it difficult for retail consumers to seek a market. So, there is no viable market for such options where the retail investors may get a buyer. 

How to Protect Yourself?

• One should not invest in any such options through an unauthorised organisation. The government authorities do not regulate the sale of rare earth elements, but they regulate some exchange contracts called futures. 

• Metals can be bought as a part of future contracts if you buy them for investment purposes and not for commercial purposes, where the physical assets are not delivered to the buyer within seven days of the agreement.

In Case You Suspect a Scam

Since the FCA does not regulate rare earth metals deals, the investment cannot be protected by the government-backed compensation scheme; however, you can seek support from the regulatory authorities if you invest in futures contracts. 

There can be a follow-up scam where the clients are contacted by the same or a new agency that wants to buy back the scheme for some charges/fees or asks for more payment to get your money back.