How To Spot An Investment Scam
Sophisticated scams are in the media spotlight once again.
29 October 2021
Keep yourself protected with these helpful tips from the Commission for Financial Capability.
David’s story is all too familiar.
He had dabbled in the share market for a couple of years when he received a call from a well-spoken sharebroker called Peter.
He took up Peter’s offer to buy a US$5,000 package of shares from an up-and-coming international company, thinking it might yield a profit.
If it didn’t work out, it had been worth the bet; it was money he could afford to lose.
Payments fell into a black hole
Eight months later, he’d handed over nearly US$250,000, only to discover that his payments had not bought shares are all, but disappeared into the black hole of an investment scam.
David is a middle-aged, New Zealand European businessman. He’s used to backing himself, making judgement calls, and spotting opportunities.
His disbelief that he had fallen for a scam was so acute that it took some effort by Bronwyn Groot, the Fraud Education Manager at the Commission for Financial Capability, to convince him that the company he dealt with was phoney.
The brokers weren’t registered, the bank accounts weren’t legitimate share trading accounts, the shares were non-existent, and David’s money was gone.
Scammers are smart
The scammers’ technique was one that Groot sees all too often, as investment scams increase in number and sophistication.
Among the victims on her books are a chief executive who lost NZ$16,000, a pilot who lost NZ$25,000, a doctor who lost NZ$30,000, and a company owner who lost NZ$266,000.
“These people are not gullible or stupid,” says Groot.
“But they’re up against international cartels that run scams as a business, siphoning millions of dollars into organised crime involving drugs, arms and human trafficking.
“They have the technology, the time, and the money to keep one step ahead.”
It all looked legit
Among the tricks that had kept David engaged with his ‘sharebroker’ Peter for months was documentation that looked legitimate, logins to website portals where he could ‘see’ his shares and their value increasing, and receipts for payments made to Hong Kong bank accounts.
Requests to pay money into different accounts, under different company names, were explained away as credit limits and buy-outs.
More than that, Peter forged a trusted relationship with David.
He became a mate, was going to come to New Zealand to visit David and his family, have a beer, see the country. He won David’s personal trust as well as his professional approval.
How it all came to a head
But one day David needed to cash in some of his shares. He contacted Peter, asked him to sell a particular parcel.
Peter tried to dissuade him, saying it wasn’t a good time to sell those shares, and distracted him with another deal.
David’s wife Jean grew suspicious, and told him to keep pressing. Suddenly, Peter had been replaced by another broker.
This man said David’s broker had been called away due to family illness – they were trying to get David’s money but they suspected Peter had locked it into a different account.
Request for more money
They needed more funds to get it released.
And so on, and so on.
David’s wife contacted their bank. They said there was little they could do, as the money was long gone overseas.
The couple contacted Groot, who had worked in the banking industry for 20 years before joining the CFFC. She knew there was something she could do.
She contacted the Hong Kong Securities and Futures Commission, and helped David make a complaint to the Hong Kong Police, who froze the bank account containing some of his money.
The case will now go to court in Hong Kong, where David’s Hong Kong lawyer will try to get his funds released.
David is one of the lucky ones. Groot says in most cases, the money is no longer in an account to be frozen, but disappeared into the criminal underworld.
Keep yourself safe
The best way to avoid losing money on an investment is to know the signs that will give it away as a scam:
· Cold-calling is illegal in New Zealand. If you receive an investment offer by cold call, it’s almost certainly a scam.
· Do your research. Search the bank account’s name in the companies register of the country it’s in. If it’s not registered, it’s fake. If it was only registered a month or two ago, be suspicious.
· Ask the broker for their full name and registration number, then contact the regulator in that country to check if they are legitimate. In New Zealand, financial advisors and financial institutions must be registered with the Financial Markets Authority (FMA).
· New Zealand banks have rules on lending money to buy shares. If the broker tells you to lie to the bank about why you want to borrow money, it’s likely a scam.
· If you suspect a scam, go to www.fma.govt.nz It keeps a list of scam companies, and you can report your suspicions to them.
Don’t blame yourself – report it
Groot says the impact of investment scams is not only financial, but also emotional.
“The victims I deal with are more than embarrassed, they’re devastated.
“They may have bankrupted their business, taking away their employees’ livelihoods, and lost their family’s money. They suffer terrible guilt, self-loathing, and some become suicidal.”
But Groot insists they shouldn’t blame themselves.
“The blame rests with the scammers – they’re the ones consciously wreaking havoc on the lives of innocent people.
“We can only keep trying to expose their tactics to help others avoid falling into their trap.”
First published 24 July, 2018
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