Investment scams can look very convincing
Investment scams can be difficult to identify from the real thing. Scammers often produce fake financial reports, forged share certificates, glossy initial public offerings and slick websites. This increases the likelihood of financial loss, even for experienced investors.
Popular contact methods for these scams are cold calling or unsolicited emails. Any investment offer out of the blue should be a clear warning sign that it is likely to be a scam.
Typically, the people who report scams are older and were seeking to invest their savings and retirement funds.
High returns come with much greater risk of losing all your money.
Common finance and investment scams
Boiler room investment scams
A professional sounding ‘broker’ calls you with an investment offer from an overseas company that’s hard to resist. The scammer promises excellent returns on your investment for little or no risk. The scammer may offer you shares, mortgage investments, property investments, managed funds, options trading, carbon-trading, forex trading or other business opportunities. They are all similar in that the scammer is looking for a direct transfer of funds that they will claim to manage for you.
They may say:
- they’re stock brokers or portfolio managers, approved by a trusted company
- they are only making the offer available to you
- keep the offer confidential.
The scammer will provide glossy brochures, fake reports and realistic websites with fake historical data. The offer will usually be for a stake in the business or a set return on the investment.
Share ramping: Scammers appear to have ‘inside info’. You get an email from a ‘company insider’. You’re told that stock in a certain company is set to rise dramatically. You check out the claim. Sure enough the stock is rising. That’s because it’s being ramped up by investors’ responses to the scammers' emails. You buy and the stock price plummets because of mass selling.
Hot tip: insider trading is illegal.
Share offers: Scammers offer to purchase shares from shareholders at a price lower than market value and rely on their victims not researching this price. They use short time limits to pressure the sale.
Similarly scammers may offer to sell shares at a lower than market price. Once money is sent, the victim will receive nothing from the scammers.
Scammers will often use current events, such as creating fake initial public offer reports for reputable companies who are publicised as going public in the near future.
Investment seminars and real estate scams
Scammers may use seminars on how to build wealth to target would-be investors. They create a high-pressure, act-now environment to draw people in. They charge you for expensive reports and consultancy that have little or no value. Some seminars may even fly you to a property location. While you are there you may be pressured into committing to the deal.
Computerised gambling systems promise to predict accurate results for horse races, sports events and even share markets. The scammers make exaggerated claims that you'll be able to make money through betting. Scammers charge a lot of money for these programmes.
In a superannuation scam, you’ll be offered the secret to unlocking your superannuation funds now rather than at retirement. Funds are usually legally locked until retirement age. The scammer arranges to have the funds released into their bank account, then they charge you huge fees to pass on the money.
Pyramid-selling scams promise money or some other reward for recruiting new members into a pyramid scheme. They make money primarily by recruiting people who all put money into the scheme. Pyramid-selling schemes may involve:
- the sale of a poor quality product
- chain letters asking for money
- multi-level marketing with expensive training materials.
Pyramid-selling schemes only work for those at the top and are illegal under the Fair Trading Act.