November 22, 2021

How to Spot Whisky Investment Scams

How can you protect yourself from whisky cask scammers? Read our guide on how to protect yourself from malicious actors and invest securely in scotch whisky casks.

Written by

Dominic

Like any alternative asset class, whisky cask investing has had its fair share of fraudsters, scammers and con-artists insipidly try to worm their way into the market. Knowing what to look out for should be of the utmost importance before investing and shady practitioners take advantage of the uninformed. As part of our firm commitment to ethical investing and transparency here is our guide to the most common red flags in scotch cask investing: 


  1. Lack of Information


With the advent of the internet, due diligence has become a lot easier, but that does not mean that you shouldn’t look even more carefully. Any company can set up a website and claim legitimacy. However, it is much harder to fake all of the accoutrements surrounding a website, here’s some things to look for: 


  • Who works for the company? Check their website to see if they show publicly their staff and organisation structure, do they have corresponding LinkedIn profiles that back up these claims? Or do they only list three people on their website and keep the rest of their ‘portfolio managers’ anonymous? Who is their director on Companies House?
  • Where are they based? Often scammers will put down a false address on their website claiming to be based there. This can be quickly checked by using google maps, do they have a proper office or are they ‘operating’ out of a shell/virtual office somewhere that seems odd for a whisky investing company to be based? Even better, if they offer the chance to meet them in their offices or at an event why not go along? 
  • Do they have any reviews online? While it used to be easy to just put up reviews on a website, nowadays with the increasing power of text recognition bots, services such as Trust Pilot and Google Reviews help to ensure that the reviews you are reading come from genuine customers. A lack of mention of these services should set off alarm bells. 
  • Active social media and blogs? A growing company will not just be placing shady paid ads, but will invest in demonstrating its own expertise in the market. Check its social media channels for recent posts and if it has a blog, when was the last time they ever published something? YouTube can be especially useful, do their employees appear in any videos? 


  1. The Whisky Itself


In the past many scammers have claimed to have access to well known brands of scotch whisky such as The Macallan, Tullibardine and Glen Moray. However, the truth was far from it. Here are some tips for spotting whether the company in question actually has access to the whisky:


  • Is the scotch aged? If the company is offering scotch whisky, ask how long the whisky has been aged for? If the figure is any less than three years, then legally the liquid inside the cask is not scotch. Scotch must be aged at least three years before it can even earn the title of scotch whisky. 
  • How well established is the distillery? Scammers often make ludicrous claims about casks of scotch whisky from brands that are not well established, they might point to an example of someone who made a large return on an indie distillery. However, as anyone who is experienced in the industry will tell you, it's more likely that the Moon turns blue while pigs fly over to it than an unheard of distillery will give a return on investment. Hackstons only deals in the most prestigious of distilleries through our partner network, we do not speculate on recently founded brands. 


  1. Ownership


Ensuring that you are the ultimate owner of the whisky cask is the most important factor. The most common scam is to send over faulty documents or false certificates. So what documents do you need? 


You must have an invoice and a certificate of ownership, without these there is no record of the transaction. It used to be mandatory to have a delivery order, however, this was legally changed since most HMRC warehouses do not send out delivery orders without you holding an account with them. The largest and most trusted warehouses do not open accounts for private investors simply due to the costs involved. This is why the initial barrier to entry was so high to private individuals due to this requirement, with only multi-millionaires being able to front the costs. The Scottish Whisky Association (SWA) reinforces this: 


“If the cask is located in a warehouse that belongs to someone other than the seller, you should ensure that the transfer of ownership is properly recorded and acknowledged by the warehouse keeper. Traditionally this was done by way of a delivery order, a document setting out the details of the cask to be transferred, signed by purchaser and seller and then delivered to the warehouse keeper. Nowadays an invoice or owner's certificate may suffice.


A fake certificate can quickly be checked through a paper trail of contracts between the brokerage and the supplier or warehouse itself, something the scammer will lack. You will also be able to match the unique cask numbers provided to what is being held in storage. If you are unsure of this, be sure to request confirmation from the brokerage. 


Through this you become the Ultimate Beneficiary Owner (UBO), which means that while the warehouse's records will state the name of the brokerage, due to you holding both the purchase invoice and the certificate of ownership your claim holds absolute legal precedence. Meaning that if Hackstons went under, the cask is not held on our balance sheet, and your whisky cask is protected and remains yours. This in many ways is similar to being a silent shareholder in traditional stocks. 


Sometimes you will hear the term WOWGR (pronounced wow-ger or woah-ger) license bandied round, this is a license that anyone who wishes to store whisky within a bonded warehouse must hold. However, as an investor you do not need to hold this license yourself.


Side Note: Shared Ownership 


Hackstons does not engage with shared ownership deals, where clients own a certain percentage of a cask. This is because coordinating the exit strategy between six different shareholders goes against our ethos of tailored portfolios and full ownership. While cheaper in cost the end result can leave clients dissatisfied with the results of such an endeavor and missed opportunities, due to clashes in exit strategy desires between clients.  

  1. Compliance


While scotch whisky cask investing is not as heavily regulated as other asset classes, that does not mean that your brokering partner should not aspire to ensure safety and security for its clients. 


If the broker does not undergo some basic checks on you during the buying process then that should be a major red flag. These checks help to protect you and the business itself from any potential damages, obviously scammers are not concerned with compliance. 


Also the broker should always carry out anti-money laundering (AML) checks on you, a cask whisky scammer meanwhile probably does not operate through Financial Conduct Authority (FCA) regulated third-party payments administrators.


Do not make a purchase until you have spoken to someone from compliance or undergone some basic AML checks. This is for your protection and safety. 



  1. Exit Strategies


Always ask what the potential exit strategies are, scammers will rush you on this part since they do not care about what happens after you transfer the funds. Consider the following questions:


  • Who will buy my cask afterwards? 
  • Is there actually a market for the cask I have bought? 
  • What are the costs in selling my cask? 


An honest whisky cask brokerage will run you through your options so that you can make an informed decision. Here are the myriad of exit strategies available from Hackstons:


  • Offer your cask back to the original distillery
  • Sell to another client via our intra-client brokering service
  • Trade the cask on the open market to a cask broker or collector
  • Purchase the cask back ourselves
  • Create our own auction 
  • Sell the cask through a third-party auction house
  • Bottle the stock and release it to the retail market 


If you are interested in getting involved in cask whisky investing or wish to diversify your existing portfolio, get in touch with us today using the form below. 


Scotch whisky investing as a whole is a safe industry, however, like all investing classes there are bad actors who prey upon those who are not informed. By following this guidance you can ensure your own well-being and reap the rewards of working alongside an established and trustworthy whisky cask brokerage. 


If you wish to find out more about whisky cask investing, get in touch with us using the form below.

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