Fake companies and investment fraud
Investment scams are often so professional, slick and believable that it is hard to tell them apart from genuine investment opportunities. Our tips break down how investment scams work.
Investment scams can come to you via a phone call, email or social media. They may even be an offer from someone you trust.
There are threetypes of scams:
- The investment offer is totally fictitious and does not exist.
- The investment offer exists but the money you give the scammer is not going towards that investment.
- The scammer says they are representing a well-known investment company but they are lying.
In all cases the money you ‘invest’ goes straight into the scammer’s bank account and not towards any real investment.
Investment scams are growing
In 2016, the number of investment scams reported to Scamwatch increased by 40% from the previous year, according to the ACCC’s Targeting Scams report.
What a scammer will say to get you to invest
The scammer will offer you:
- High, quick returns and sometimes tax-free benefits
- Share, mortgage or real estate investments, ‘high return’ schemes, option trading or foreign currency trading
- No risk or low risk investment, as you can sell anytime, get a refund for non-performance, have insured or ‘guaranteed’ transactions or swap one investment for another
- Inside information, the opportunity to invest before a public float or discounts for early bird investors
Remember that a glossy brochure or website is not evidence that an offer is a good investment or even a real deal.
Warning signs of investment scams
The investment offer may be a scam if the person:
- Does not have an Australian Financial Services licence or says they do not need one
- Rings you many times and tries to keep you on the phone or emails you a lot to keep you engaged
- Says you need to make a quick decision or you will miss out on the deal
- Claims they are a professional broker or portfolio manager and sounds professional but is actually following a script
- Uses a name or claims to be associated with a reputable organisation to gain credibility e.g. NASDAQ, Bloomberg
- Offers you glossy prospectuses, brochures, share certificates or receipts or directs you to a slick website
If the investment offer has some of these signs hang up the phone. If you manage to record some of the caller’s details please report the offer to ASIC.
Tactics used by investment scammers
Scammers will use a range of tactics to get you to invest in their company. Here are some of the common strategies.
Many investment scammers operate from overseas or offer foreign investments as their activities are illegal in Australia. Overseas scammers target Australians as ASIC does not have international jurisdiction to prosecute them.
Many scammers use the internet to make their investment appear legitimate. They use highly sophisticated websites and issue online press releases that make false claims of outstanding corporate performance. They even provide some victims with logins to view fake investment balances and growing returns.
Fake social media profiles
Some scammers contact you through social media messaging, advertisements displayed on your social media feed, or by requesting to be your ‘friend’ first. They may pose as someone you know or have a connection to, in order to gain access to your profile information and to send you offers to invest and make quick money.
They may also use your information to impersonate you and create a fake social media account to approach people in your friends list. See identity fraud for more details.
Passing your call along the line
Investment scammers use a team of less experienced staff to make the initial call. The junior staff follow a tight script to check your interest. If you take the bait they hand you onto a more senior person. This can happen two or three times.
The more senior people are called ‘closers’. They are extremely skilful sales agents and their job is to make you feel compelled to close the deal and send your money.
Long or persistent phone calls or emails
Investment scammers will call you endlessly or keep you on the phone for a long time with promises of wealth or opportunities lost if you do not take up the offer. They will not take no for an answer and ask you about your worries to reassure you. As long as they can keep you talking or emailing, you have not really said no.
Remember that there are Government standards that outline when and how telemarketers can contact you but investment scammers will contact you within and outside these times. Telemarketers are not allowed to call you before 9am or after 8pm weekdays (or after 5pm Saturdays), and never on a Sunday or public holiday. See the Do not call register for more details.
Stop you pulling out of the deal
Scammers may try to swap your current investment for another one if you try to change your mind about the deal. They may also try to convince you that your investment will increase in value soon. Even though they know you will never get your money back, they still want to try and get more money from you.
Scammers can also threaten baseless legal action to keep you from pulling out of the deal. This is usually just a threat and they don’t carry it through.
Peter Kell talks about investment scams
ASIC Deputy Chair Peter Kell explains how investment scams work and how best to identify and avoid them on the ASIC View podcast.
Subscribe to ASIC View podcast on PodBean.
Read these true stories of people caught up in investment scams:
Ponzi schemes: Maria invests money in a scheme promising very high returns.
Magnetic engines: Ron invests in new technology and loses his money.
Boiler room scam: Mark is offered discounted shares in an overseas company.
Endless calls and high pressure sales: Malcolm gets pressured by a persistent investment scammer.
Before signing up to any investment, do your checks to make sure it’s legitimate. Asking questions and doing some research on the company, could save you from losing money to a scam.
Check the legitimacy of the person offering the investment by asking these questions:
- What is your name and what company do you represent?
- Who owns your company?
- Does your company have an Australian Financial Services Licence and what is the licence number?
- What is your address?
If they try to avoid answering these questions, it is probably a scam. Hang up the phone, do not respond to the email, stop dealing with the person or delete and block them if it is through social media.
No legitimate company would use harassment to get a person to invest.
How to do your own research on the company
It is important to do your own research on the company and take the time to seek independent professional or legal advice. Don’t rely only on their information to make your decision and do not be pressured to make a quick decision you could regret later.
If they answer the questions above, you can then take these steps to do your own research
- Cross check their address details on publicly listed phone directories.
- Check to see if the company has an Australian Financial Services Licence or Credit Licence for any investment or credit opportunity. being offered on ASIC Connect’s Professional Registers.
- Check if their company name is on our list of unlicensed overseas companies.
- Check IOSCO’s (International Organization of Securities Commissions) investor alerts and search for overseas companies that are not authorised to provide investments services in the country that has issued the alert.
- Check our list of fake regulators and exchanges if they have mentioned them.
- Check IOSCO’s list of real overseas market regulators.
Why investing overseas is risky
Remember that investing with overseas companies can be risky. They are outside Australian jurisdiction so you won’t be able to get help if something goes wrong. Companies based within Australia are required to have an Australian Financial Services Licence (AFSL), which means that you are better protected if things go wrong. Find out more about an.
There are plenty of legitimate overseas investments that you can make through mainstream companies based in Australia. Don’t part with your hard-earned money unless you understand the risks involved.
What to do to protect yourself from investment scams
There are many things you can do to make sure you don’t fall victim to an investment scam.
- Always get independent financial advice before you invest.
- Don’t accept a message or friend request on social media from someone you do not know.
- Ensure your privacy settings are up to date on your social accounts.
- Be wary of random or unexpected contact, particularly if you have replied to something on a website or social media platform.
And if you think you have been the victim of an investment scam you should:
- Report it to ASIC or your local police (the company name, location and contact details, if you have them).
- Stop sending any more money to the company – be wary of falling for a secondary scam or offers to recover your money.
Find out more tips on how to avoid scams.
Investment scammers are skilled at convincing people that the investment is real, the returns are high and the risks to your money are low or non-existent. Be suspicious of anyone offering you easy money. There is almost always a catch.