Mutual fund fraud is possible

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In Germany, banking, financial services and insurance business may only be carried out with state permission. But even if BaFin has given the institutes permission to do so, this does not automatically mean that the products offered are recommendable. Securities and investments may also be offered to the public if a prospectus or information sheet approved by BaFin has been published beforehand. But that does not necessarily mean that the prospectus or information sheet and the products are reputable. BaFin only checks the prospectuses for completeness, comprehensibility and coherence (internal consistency). In addition, in some cases neither a prospectus nor an information sheet need to be published.

In general, think about your investment goals before investing and check your financial options. And: don't let yourself be rushed. Take the time to consider the pros and cons of investing before investing your money. Even if you seek advice, you do not make up your mind immediately.

Which offers should you be particularly careful with?

Unsolicited call

Is someone calling you unsolicited to offer you a deal? In no case do not go into it. Such unsolicited calls are prohibited. Investment services companies and other companies are expressly prohibited from cold calling.

Email / fax

Have you received stock recommendations by email from a provider that you do not know? Do you receive stock letters by fax that you did not order? Or are you being presented with an alleged insider tip that you are supposed to be aware of? Behind such offers are mostly dubious providers who want to convey shares of worthless companies to investors for their own benefit through an invented success story.

time pressure

Are you put under time pressure? Is the provider tempting you with an exclusive business that you have to decide on very quickly? You shouldn't go into this because it is often just a trick. As I said: never let yourself be rushed! Serious offers are not only available today, but also tomorrow.

High returns or exceptional development potential

Are you promised unusually high interest rates? Promises of returns that are far above the market standard can also be an indication of dubious offers. As a rule, the higher the promised profit, the higher the risk that you will lose your invested capital. You can find out which returns are customary in the market, for example, in the course section of the daily newspapers or on the Deutsche Bundesbank's website. You should also critically scrutinize recommendations on companies that are considered to have exceptional development potential. Penny stocks are particularly susceptible to speculation and manipulation due to their low prices and trading volumes.

Unclear product

Does the provider have difficulties explaining their product? Never buy a pig in a poke - first inform, then decide! Only buy what you really understand! Basically, the more complicated a product is, the more experience you should have with financial transactions. Get to grips with the product yourself and do not be tempted by fantasy titles and embellished graphics.

Opaque exit options

Clarify how and when you will get your investment back. You should be particularly careful with long-term contracts, if there is no possibility of early termination or if this would entail significant financial disadvantages.

You should only conclude contracts that run for several years without the possibility of an early exit with providers whose seriousness you have no doubt in any way. Remain critical even if you can cancel or terminate a deal at any time within a certain period of time. Such rights do not automatically protect you from financial loss either. Clarify which repayment you will actually receive if the worst comes to the worst. The following applies to securities transactions: Find out about options for parting with a security before the end of the term. It is often important to know whether there is a liquid market for the product.

Transfer abroad

Do you want to transfer money abroad (outside of Europe)? Be extra careful. Many investors have already lost their money in the process. You may no longer be able to see whether and how your money is being invested. There have been cases in which the company to which the money was transferred did not invest the amount as agreed or did not invest at all. Sometimes the company didn't even exist.

Investment on trial

Are you tempted to initially invest a smaller amount on a trial basis? The reason why you cannot find any information about the company in your research is that it is a young company with promising business ideas? Then the supposed insider tip is probably a trap. After a short time, the provider will report on the great success of the system and ask you to invest larger amounts. Lured by the success of your trial investment, you should be tempted to invest more money.

Pyramid scheme

They are persuaded to invest in supposedly lucrative investment businesses. In reality, however, the funds are not invested, but used to distribute or repay previous investors. Such a pyramid scheme is usually not recognizable for investors. The investment and its return are often simulated in glossy prospectuses. Sooner or later this system breaks down.

Companies based abroad often specifically offer German investors products that hide pyramid schemes. The backers of the companies are usually Germans who use foreign company forms and headquarters in order to evade the German authorities. Promises of return that are well above the market standard are often a warning sign of a pyramid scheme.

Unauthorized orders

It happens that unauthorized persons order securities transactions without the knowledge of the account holder in order to make the price rise. This occurs above all in transactions in illiquid foreign securities on the open market (Freiverkehr). You should therefore be careful if strangers ask you to divulge data without being asked, with reference to alleged bargains or profit notices. Never give your account or custody account numbers, international bank account numbers (IBAN), international bank identification codes (BIC), secret numbers or passwords to unauthorized or unknown persons. Also, do not send any securities statements or other custody documents to strangers. This also and especially applies to callers who pretend to be investment advisers, intermediaries or employees of BaFin.

High costs and commissions

Get an overview of what proportion of your investment amount should be used for costs, fees and commissions. Use the mandatory information provided by the provider! Investment service providers not only have to explain the total costs to investors, they also have to inform them of all costs incurred and their effects on returns. Donations are even to be shown separately. Since securities service providers are allowed to summarize the costs, they must provide you with a list broken down into individual items if you request this.

Particular caution is required with forward transactions and the day trading that is often associated with them. This can result in high fees for each transaction. The provider is therefore fundamentally interested in a large number of deals. The fees are often so high that the bottom line is that you can hardly make a profit. Often the costs even consume the capital invested in a short time.

Gray capital market

Not all companies that are active in the financial market are controlled and are under state supervision. Providers who do not need BaFin approval and only have to meet a few legal requirements operate in a market segment known as the gray capital market. As an investor, you should only respond to offers on the gray capital market if you know the company and are convinced that it can meet its obligations. As I said: Such providers are not under the supervision of BaFin!

The offers on the gray capital market are very diverse. Again and again providers develop new investment opportunities. For example, you can find company investments, profit participation rights and other hybrid forms of bonds, bonded bonds, crowdfunding, loans with subordination agreements, direct investments (e.g. in wood, precious metals, mines and animals), gold and precious metal savings plans as well as purchase and re-letting contracts (sale-and- Lease-back).

Unclear conditions

Can't you see who your contractual partner should be? Are there any warnings or other information? Check the names of the vendors and products using search engines on the internet. Information is often also available from the local consumer advice centers. Do not do business with vendors who do not provide you with meaningful information. Do not rely on good-sounding names or reputable websites. And if you do not understand the contract, keep your hands off the offer!

Providers abroad

Is the provider a foreign company (for example a limited company or corporation) that is not itself active in Germany? Dubious German providers often set up a company abroad in order to sell investment products in Germany from the pretended foreign company headquarters. In doing so, they make it difficult for the German supervisory and law enforcement authorities to access them.

In such a constellation, it is particularly difficult to enforce civil law claims against those responsible. Companies that claim to be internationally active have a corresponding response on the Internet. If, apart from the company website, no further information, contributions or articles can be found that refer to the company, then caution is advised. For example, look for the company address on the Internet. If you enter this in search engines or map services, it is not uncommon for many other companies to be found at the given address. Additional functions of the card services with photos of the respective address sometimes show very quickly that the company headquarters is not the prestige domicile described. So you may be dealing with a mailbox company. You shouldn't entrust your money to a company that is already deceiving about the scope of its activities.

Call center calls

There are call centers that call en masse to persuade them to invest. The methods are intrusive to aggressive. The following situation is conceivable: Shortly after you have invested, you should inject more capital due to an unexpected event. If you want your money back later, you will be told that withdrawals cannot be made until you purchase more products. As a result, you will be asked to make more and more deposits without ever withdrawing anything.

Another variant: You are asked to buy the recommended shares yourself through your custodian bank. To settle the expected profit, you should send proof of your purchase. In truth, your securities statement serves the tipsters as proof of placement in order to receive commissions from the backers.

Advertising with BaFin

Don't let yourself be blinded by the fact that a provider advertises that they are supervised by BaFin. Always find out for yourself how far the supervision actually extends. Always be well aware of what it means that a company has received a license from BaFin or that the supervisory authority has approved a prospectus. For example, the BaFin does approve prospectuses for securities (e.g. for shares, bonds, certificates) and investments (e.g. profit participation rights, registered bonds, limited partnerships) before publication and thus allows the public offering. However, BaFin only checks whether the prospectus contains the minimum information required by law and has been drafted in an understandable manner. In addition, it ensures that the prospectus does not contain any contradicting statements. BaFin only checks information sheets to see whether they contain the legally required minimum information in full and in the prescribed order.

However, BaFin is not responsible for checking the seriousness and solvency of the issuer or for checking the product! The prospectus review is not a seal of approval and not the same thing as a permit to do business - even if providers tell you otherwise. Companies in the gray capital market in particular often try to lure investors with an approved prospectus and thus simulate approval from BaFin. Such advertising is expressly prohibited.

How is your investment secured?

If your bank or securities trading company encounters payment difficulties, deposit insurance and investor compensation - to a certain extent - protect your balances and claims. Customer deposits are protected by the deposit insurance, customer claims from securities transactions by the investor compensation.

Statutory deposit insurance

If a bank becomes insolvent, the statutory deposit insurance protects the customers' assets. Account balances, fixed-term deposits and savings deposits of up to 100,000 euros per customer and institute - and not per account - are legally protected. In the case of joint accounts, each individual account holder has a separate entitlement. Under special conditions, the maximum amount for a period of six months can increase to up to 500,000 euros. The deposits of customers of savings banks, Landesbanken, Landesbausparkassen and cooperative banks are indirectly protected in full by their liability associations, which the institutions secure. In addition, the institutional protection systems are recognized as equivalent deposit protection systems. The customers therefore also have a statutory right to compensation - as is the case with the statutory compensation institutions.

Voluntary deposit insurance

In addition to the statutory compensation schemes, the banking associations have set up voluntary security schemes. However, they do not grant bank customers any legal right to compensation.

Investor Compensation

Monies owed to you as an investor in connection with securities transactions (e.g. distributions, sales proceeds) are subject to the statutory investor compensation. This protects your claims against your bank to surrender the securities held for you or money that it owes you from securities transactions. The compensation claim is limited to 90 percent of the liability and the equivalent of 20,000 euros.

However, the Investor Compensation does not pay you any compensation, for example if your insolvent bank advised you incorrectly. You will therefore not be reimbursed for lost profits or losses that you have incurred as a result of an incorrect investment strategy.

Bearer and order bonds or bonds are not secured. The security systems do not work even if you have acquired a stake in a company with your investment, for example through the acquisition of a share or a silent participation. Your investment will then participate in both the company's profits and losses. Always check before investing whether and how your deposits are protected if the company is no longer able to repay the money.

Special case processing

Institutions that should not go into bankruptcy due to their systemic relevance are wound up in an orderly manner if they fail. In liquidation, too, as in bankruptcy, losses are shared between owners and creditors. One then speaks of a bail-in.

In the event of a bail-in, you as a private investor can also be involved in losses: as a shareholder, as the holder of relevant capital instruments, but also as a creditor. You are a shareholder, for example, if you have shares in this bank in your custody account. As the holder of relevant capital instruments, you are considered to be if you have invested in instruments of the institute's additional tier 1 capital, such as subordinated bonds or subordinated loans. You are a creditor, among other things, if you have a credit account with the bank or if you hold bonds from the institute - for example index certificates.

The deposits covered by the statutory deposit insurance are excluded from the bail-in. In addition, the liability in the settlement must not exceed the losses that you would have to bear if the bank had been led into regular insolvency proceedings.


If you have acquired a security through a bank or a financial services institution as a result of advice, you can also inquire there whether the product falls under the creditors' participation or whether you are liable as a shareholder.

In the article "Difficulty of a bank or an insurer: What you need to know as a customer" you will learn how the security systems in Germany work and which funds, claims and contracts are protected. There you will also find out more about when and to what extent you would be involved in the loss of a bank in the event of liquidation and to what extent you as a private customer would then be protected.

Where can you find out more about providers?

At BaFin

Lists of companies that have been approved by BaFin can be found in BaFin's company database. If the supervisory authority determines that unauthorized business is being carried out, it has extensive powers to enforce the immediate cessation and processing of business. BaFin publishes these discontinuation and liquidation orders. Please note, however, that even if the company is supervised by BaFin, this does not change the fact that you can lose your money. Therefore, before concluding a transaction, you should always check carefully to what extent a repayment claim is contractually stipulated.

At the consumer centers

Information on all aspects of investing is available from the Federation of German Consumer Organizations and the local consumer advice centers, for example. Often you will also find lists of the names of dubious providers there.

A number of business and financial magazines also regularly publish lists of dubious providers and products.

With the issuer or provider

The securities prospectus or the securities information sheet or the investment sales prospectus or the investment information sheet also contain essential information about the issuer and the product offered. It also details the risks that you should know before investing your money. You can find overviews of the prospectuses for securities and investments deposited with BaFin in the prospectus database of BaFin.

What can BaFin do for you?

Responsibilities of the integrated authority BaFin

BaFin supervises banks, financial service providers, insurers and pension funds as well as capital management companies and investment funds. It also monitors securities trading, for example for insider trading and market manipulation, and is the national resolution authority.

One of the tasks of the integrated authority BaFin is to guarantee the functionality, stability and integrity of the German financial market. Bank customers, insured persons and investors should be able to trust the financial system. BaFin therefore ensures that market participants adhere to the relevant laws. In addition, BaFin also operates collective consumer protection. For example, if there are significant concerns about investor protection, it can restrict the distribution of a product or even prohibit the product.

Complaint to BaFin

If you feel badly advised in connection with the purchase of securities or investments and have lost money as a result, or if you suspect an offer, write to us. If your complaint is directed against a company that is under our supervision, we will contact the company concerned and follow up with them if there are indications that your complaint may be well founded.

However, BaFin cannot make binding decisions on individual disputes. Clarifying the facts and evaluating evidence in civil proceedings is the task of the courts. Only they can bindingly clarify disputed facts and legal views and oblige the company to make a payment.

Arbitration board at BaFin

BaFin has set up an arbitration board. It deals with disputes in connection with the Capital Investment Code as well as with banking transactions and financial services, provided that no private, recognized consumer arbitration board is responsible.

When it comes to consumer disputes that affect the provisions of the Capital Investment Code on investment funds and their management companies, in many cases you can contact the recognized private consumer arbitration board of the Bundesverband Investment und Asset Managemente.V. turn.

In the event of disputes with closed-end funds, the ombudsman for tangible assets and investment assets can be a suitable point of contact.

A list of consumer arbitration boards and further information on arbitration can be found here.

Consumer telephone

BaFin has also set up a consumer hotline that you can call every working day from 8 a.m. to 6 p.m. with your questions: 0800 2 100 500 and +49 (0) 228 299 70 299 (for calls from abroad).

Report to the public prosecutor's office

In general, if you have the feeling that you are being made a dubious offer or that you have fallen for a fraud, report it to the police or the public prosecutor's office as soon as possible!

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