How to spot a scam. Securities Commission brochure [2004] NZSecCom 5 (1 June 2004)

Last Updated: 9 November 2014

HOW TO SPOT A SCAM

SECURITIES COMMISSION NEW ZEALAND
Helping people make better investment decisions

IF YOU WANT TO MAKE MONEY FROM INVESTING YOU MUST LEARN TO SPOT AN INVESTMENT SCAM.

Every year ordinary New Zealanders lose millions of dollars in investment scams. Most of these could have been exposed - if people had used their common sense and asked a few questions.

Don’t become the next victim. Learn how to identify and avoid investment scams.

HALLMARKS OF A SCAM

Scams have common characteristics. An "investment" offer is likely to be a scam if you are:

• promised very high returns with little risk. These promises are too good to be true.
• given little information in writing. All legitimate investments must have documents that explain the investment.
• told the offer is known only to a select few, or is a "once in a lifetime" opportunity. These ploys are to make you feel special and encourage you to pay money.
• not told who is behind the offer or given a physical address. Legitimate investments must give the names of contact people and full addresses.
• promised access to "prime banks" or other "secret" overseas agencies that supposedly offer very high returns. These agencies don’t exist.
• asked to keep the "investment" offer secret. This is to stop the authorities hearing about it.

WHAT SHOULD YOU DO IF SOMEONE MAKES YOU AN OFFER WITH SOME OF THESE CHARACTERISTICS?

• Ask for the Investment Statement. Almost all investments offered in New Zealand must have a published Investment Statement with important information about the investment*. So do most overseas investments offered here. This is a good way to expose potential scams because con artists rarely put anything in writing. Asking for the Investment Statement shows that you know your rights, and are not an easy target.
• Ask more questions. Be very wary of paying any money if you can’t get answers to these questions:
  • What sort of investment is this? You’d be surprised by how many people don’t understand what they are investing in.
  • What are my risks? Be suspicious if you’re told the investment is risk free.
  • How do I cash in my investment?
  • Who will my money be paid to?
  • What is the name and address of the entity you want me to invest in? The names of people offering legitimate investments are always available.
  • Who do I contact for more information or if something goes wrong?
  • Is the money going overseas? If so, what is the name and address of the New Zealand agent? Get a physical address, not just a box number or phone or fax number, which might only be a forwarding agency.

The answers to all these questions would normally be in the Investment Statement.

^*Some investments don’t require this document, but they do have to have other documents that explain the investment (e.g. a product disclosure document or a key features document).

WHAT SHOULD YOU DO IF SOMEONE MAKES YOU AN OFFER WITH SOME OF THESE CHARACTERISTICS? (Continued...)

• Seek independent advice. Before you hand over any money discuss the offer with a lawyer, accountant or financial adviser who has no connection with the investment offer.
• If you are suspicious about an investment do not hand over any money. Report the matter to the police or the Securities Commission.

PHONE CALLS OUT OF THE BLUE

Many New Zealanders have lost money in "investments" in response to unsolicited telephone calls from overseas. These callers offer shares in United States companies. They are very persuasive and persistent.

When people send money in response to these calls it almost always disappears. If people do get shares they usually turn out to be worthless. The "broker" becomes difficult to contact and the victims have little hope of seeing their money again.

FOLLOW-UP SCAMS

Victims of these scams often get a follow-up phone call from another "broker" who knows about the original share purchase. This "broker" may offer to trade the shares for more profitable ones. But first the investor has to send more money. This is all part of the same scam. If the victim sends more money that disappears too.

HANG UP ON UNSOLICITED CALLERS

Do not put yourself and your savings at risk by sending money to strangers. The best option is to hang up every time you are called.

If you want to buy shares in an overseas company use a New Zealand share broker who is regulated under New Zealand law.

A list of people who have targeted New Zealanders is published on the Securities Commission website www.seccom.govt.nz These fraudsters change their names often, so even if a person who called you isn’t named on the website they may not be genuine.

This leaflet is for general guidance only. If you are in doubt or would like definitive information you should seek professional advice.

HOW TO CONTACT THE SECURITIES COMMISSION

Level 8, Unisys House
56 The Terrace
PO Box 1179
Wellington

Fax [phone]
Email [e-mail]
Website www.seccom.govt.nz
2004

This information is also available as a printed brochure from the Securities Commission at no cost.

The Securities Commission is New Zealand’s main investment regulator.
We help build confidence in New Zealand’s securities markets.