The rare earth scam

The rare earth scam is the new scam on the block. Don't be a victim!

Just what is “rare earth”? It's not the name of a colour out of a paint mixing machine. Nor is it a title in a science-fiction trilogy (and if anyone uses that idea, I want a share of the royalties).

Instead, it's the description of a number of metals, many used in electronics and other high-tech applications. And it is the latest scam.

Both in my own personal experience and that of the Financial Services Authority, landbanking (the sale of worthless farmland with the valueless promise of a fortune through planning consent) is fading. It's old hat – been around for a decade, so victims are harder to find.

Many landbankers moved seamlessly into carbon credits – another scam to part vulnerable victims from their savings. That's only a year or so old, but it is already starting to get the adverse attention it deserves, here and elsewhere.

So the smart scamsters are switching to rare earth metals (sometimes called rare earth elements) to stay a step ahead of investor awareness and two steps ahead of fraud fighters.

The new scam on the block

I have not been cold-called as yet – that will come – but over the past ten days, I've had three emails from “marketing companies” inviting me to apply for further details. This will mean a glossy but dodgy brochure and a call from someone reading from a script who will pick up around a third of whatever I can be persuaded to invest.

First, a chemistry lesson. My school, and many others, displayed the “periodic table of elements” in the science lab. It started with hydrogen and ended with uranium. Seventeen of these are called “rare earth elements” - including scandium, yttrium, and lanthanum. They are called “rare” because they are mixed up with other elements in metal ores and are difficult to purify rather than due to any lack of them. And as many are used in electronics, including your laptop and smartphone, recent recycling advances mean there are new sources.

The rare earth scamsters will play on their use in expensive, often essential, items such as x-ray machines, electric or hybrid cars, and flat screen televisions. Just as the carbon credit racket plays on “Kyoto” and “combating global warming”, the rare earth hucksters love “green technology”.

And they love quoting lines such as: “You can benefit from a market boom – these rose 200% over 2010-2011 so there are big profits. These are rare, they are used in 80% of all global industry, they are essential and they cannot be replicated synthetically.”

Whatever the truth of any of those statements – and like all good fraud lines, there is an element of veracity – investors will end up buying something that is absurdly overpriced and almost impossible to sell. Some of my emails suggest I could start at £1,000 to £5,000. There is simply no market in that amount – the real worth will be a tenth of that.

In any case, metals dealing is strictly for professionals.

The benefits of ownership

The sales email lists eight “key benefits of ownership”.

100% independent ownership - you would expect to own what you bought
Secured in a bonded warehouse and insured – So what? Insurance on a near worthless lump of ore costs little. And do they expect you to take the stuff home?
Used in 80% of all global industry, especially technology. Yes, some (but not all) rare earth elements are used in high-tech manufacture. So is iron or aluminium, electricity and oil.
Scarce commodity – increasing in demand. No, they are not scarce. Extraction is pricey, but getting cheaper as techniques improve. So more nonsense.
Independently verified. A metallurgist's fee will probably exceed the real value. In many cases, there will not be any metal at all. Some scams will involve shares in rare earth element mining companies. These will be phoney as well.
Individual ownership certificate. This will not be worth the paper it is printed on – individual ownership does not prove value. Still, victims can frame it.

The last two are even more pernicious.

FSA Verification – the regulator does not verify anything, let alone a piece of metal ore. This is a lie to persuade investors to buy.
FSA-approved money handling and escrow account. This may be true but it is meaningless. Just because your money goes from your account to their pockets via an FSA-approved bank or other facility gives no indication of value. Remember, a safe deposit company does not care whether you keep something a piece of jewellery worth £10 or £10million in one of its boxes.

More on scams:

The rare earth scam