Over the years, many people have arrived at ASF with questions about various "investment" businesses that have cold called them, and given them a sales pitch filled with promises of high returns with very little effort or risk. In many cases these people are told that they will be able to quit their job and live a leisurely life spending as little as 30 minutes a day trading financial markets. All they have to do is hand over a four or five figure upfront membership fee and the company will sell them black box software or send them index trading, or forex alerts that will enable them to earn a substantial income. In many cases the promises are not so elaborate and fanciful, but the sizable upfront fee and promises of far above average returns are always part of the sales pitch. Whatever company it is will always have the proverbial goose that lays golden eggs.
All of these businesses are investment scams. They are selling dreams, not reality. You will not only lose your sizable upfront membership fee, but more than likely whatever money you trade based on their alerts, or buy signals generated by their black box software. Once they have your membership fee they don't care whether you make any money. They have already made theirs, and their aim will be to keep the scam going for as long as possible, and rip off as many people as they can before it all falls over and they are forced to close up shop and disappear.
Here are some things to look out for if you are concerned that a company you are dealing with may be an investment scam:
Company or domain name registered recently
Good reputations take a long time to build, and genuine investment businesses will have been around for years. Scammers will register their company and domain name, create their website and get to work fleecing gullible people quickly. They know that most people will never bother to check when their company or domain name was registered, so this is not something they are usually concerned about.
You can find out the registration details of any domain name here: http://whois.domaintools.com/
You can find out information about a company, including when they were registered, by searching ASIC's registers here: https://connectonline.asic.gov.au
If the company or domain name of an investment business you are dealing with was registered recently, be very suspicious. It is most definitely a red flag.
Domain name privacy enabled
As far as I'm concerned this is almost a guarantee that you are dealing with an investment scam. No legitimate company has domain privacy enabled on their domain name. Why would any genuine investment business (or any business for that matter) want to hide the registration details of their domain name? The answer is that they wouldn't. Only those who have something to hide would do this. If you are dealing with a company that has domain privacy enabled on on their domain name registration information, do not deal with them any further. You are about to get scammed.
Promises of high returns with minimal risk and little effort involved
No genuine investment business would make these kind of promises. Scammers try and appeal to people's sense of greed by making promises of returns unattainable even by professional traders and fund managers. Sadly, there are many gullible people out there who will be taken in by these promises and will hand over their money. The salespeople for these businesses are usually professional telephone salespeople working on commission, and they will work very hard for the sale, as that's how they get paid. They will be smooth talking, reassuring and will do their best to convince you that you are making a very smart decision by becoming a member.
Use of a virtual office
This is a common tactic scammers use to make you think that you are dealing with a much larger, legitimate business. For a relatively small fee it is possible to rent a "virtual office" in a prime capital city CBD location.
What is a virtual office? It is exactly what it sounds like, an office that doesn't actually exist. Virtual office services include the use of a prestigious CBD address, a receptionist who answers the phone in the company name and takes messages. There will be many different businesses using the same address, as the addresses of virtual offices are rented to many different companies. Not all companies using virtual offices are scams, but many scammers do use them to make you think that you are dealing with a big company with a prestigious CBD address instead of a small scam outfit operating out of a residential addresses or a small suburban office.
If you suspect that a company you are dealing with is using a virtual office, simply Google their address and if it's a virtual office it will show up on the website of one of the many companies offering virtual office services. The largest companies are Regus and Servcorp, but there are many other smaller companies offering a similar service.
You are required to register your details before viewing information on their website
Those running investment scams need phone numbers of potential marks to sell their scam to. One of the strategies scammers use to extract this information from people is to make it mandatory to submit this information in order to view certain sections of their website, such as details of their products and services, or their "performance history", which is almost always manufactured. Along with your name, and perhaps other details, you will be asked to hand over your mobile phone number.
Be very wary of any investment business that asks you to hand over your phone number. No legitimate investment business will fish for your personal information in this way.
Company located on the Gold Coast
The Gold Coast is awash with frauds, scammers, and snake oil salesmen. It is widely regarded as the fraud capital of Australia and almost every single scam that has been exposed here at ASF has been based on the Gold Coast. Be particularly careful when dealing with investment businesses based on the Gold Coast, as your chances of being ripped off are considerably higher.
Some investment scams will go to great lengths to hide the fact that they are based on the Gold Coast because of the stigma attached to it. They will often rent a virtual office in Sydney, or Melbourne and list that address on their website. However, it is very easy to find the post code of any company's registered place of business by searching ASIC's company register here: https://connectonline.asic.gov.au/RegistrySearch
No genuine investment business will cold call you. They don't need to. Only scammers cold call because it is the most effective way to find people who will hand over thousands of dollars without doing any research or appropriate due diligence. Often, scammers employ professional telephone salespeople who work on a commission basis. Avoid any company that cold calls you, especially those that keep calling back in an attempt to close the sale.
Little or no information about who owns or is employed by the company
The "About Us" page of an investment scam website - if it even exists - will usually be very light on detail. They will brag about their "experienced group of professional traders" or their "research team of industry experts" but there will almost never be any real names mentioned. The reason for this is that there are no professional traders or industry experts, just a group of scammers whose sole purpose is to extract as much money as possible from gullible people.
I do recall one exception to this. The "About Us" page of this particular company had photos of professional looking people complete with names and career profiles. In reality, the photos had all been taken from other websites and the names and career profiles were all fictitious. None of those people actually existed. They were all a figment of the scammer's imagination and were used to give the company a facade of credibility.
High pressure sales tactics
The professional salespeople employed by scam companies will use every high pressure sales tactic in the book to get you to part with your money. You may be told that there are limited memberships available and they are down to the last few. If you don't sign up now you will probably miss out. If you hesitate and ask for time to think about it, when they call back next time there will even be fewer memberships available.
Sometimes the pressure is even more intense and you may also be told that if you don't sign up that day you will miss out. They may also offer to discount the price as an incentive to hand over your money. They will probably tell you that they are not supposed to discount the price but are doing it just for you and only this one time.
You will more than likely be fed lies about their previous returns, which will always be very high and well above average market returns. They will make it seem like you are about to miss out on the opportunity of a lifetime. Don't be fooled.
Sometimes they will include a free iPad or laptop as an incentive. Of course, the cost of this "free" iPad or laptop is already factored into the membership price, but some people are swayed by the prospect of getting something tangible for "free".
These salespeople will do everything they can to get you on side. They will listen to and allay your every concern. They will have an answer for every question as they will undoubtedly be working from a script. There may be a worthless "money back guarantee" offered to you. They will cajole and reassure you at every step, as they work towards closing the sale.
Numerous generic promotional blogs, "reviews" of the business, and press releases
Often one of the first steps those running an investment scam will take is to create dozens of fake reviews, promotional blog pages and generic press releases on free press report websites and popular free blogging platforms. They do this for a few reasons:
- All of these pages will give the business an air of authenticity and may convince the casual reader that those who are using the service are making the promised returns.
- When potential victims are cold called by the company and given the hard sell, the salesperson may even encourage them to Google the company name, knowing that they will find the fake pages rather than any genuine reviews or complaints. It is easier to close the sale if the potential victim is convinced that the company is genuine.
- When the eventual complaints start rolling in on forums, these fake blogs and reviews will often outrank those forums containing the complaints. This will enable them to keep the scam running for longer and rip off more people.
It is very important to remember that these fake blogs, reviews and press releases are very easy to create. It only takes a few minutes to create a blog and start posting on Wordpress or Typepad. Likewise it is a very simple process to write and post a press release on one of the dozens of free press release websites. It would be prudent to take anything you find on the web that fits this description with a grain of salt, as it is mostly likely not genuine and created by those running the scam.
Another tactic used by scammers is to get someone they know to register at forums where threads have been started by someone enquiring about the company and post as a satisfied customer. Some of them will forgo using a third party and post as a satisfied customer themselves. Ask yourself, how often have you scoured the internet looking for forum threads on companies that you are happy with just to post and defend them? I've never done it, and I sincerely doubt most people have.
That's not to say that all positive reviews of a product or service are fake. Look for people who have been members of a forum for years and have hundreds or even thousands of posts to their name. These individuals are not "one post wonders" and have invested a lot of time at the forum, making their assessment more likely to be genuine.
A quick word about licensing
An AFSL or Australian Financial Services License is required to conduct a financial services business in Australia and authorises licensees to, amongst other things, provide financial product advice to clients. Obtaining an AFSL is not simple, or easy, and it goes without saying that an investment scam will almost certainly not have one. However, it is possible for an investment scam to be an "authorised representative" of an AFSL holder.
In the past there have been a number of companies holding an AFSL that have made a lot of money from renting out that license to others as authorised representatives. In late 2011 two of these companies, Mark Power Financial and Romad Financial Services had their AFSLs revoked by ASIC for not carrying out appropriate background checks before appointing authorised representatives and for failing to have measures that allowed them to determine whether its representatives complied with financial services laws.
While it is almost certain that an investment scam will not have an AFSL, it is possible that they may be an authorised representative of a company, or person, that does. The fact that a company is an authorised representative of an AFSL holder does not necessarily mean that they are running a reputable business.
In fact, many of these dodgy businesses that send out trading alerts or sell black box trading software are not required to be licensed because they are technically not providing financial product advice, specific financial advice or dealing in securities.
It needs to be said that just because a business meets one or two of the above criteria, it doesn't necessarily mean that they are operating a scam. However, the more of the above criteria a business meets the more suspicious you should be, and the more hesitant you should be to deal with them.
The reality is that the amount of investment scams being operated out of Australia has reached epidemic proportions, and it is incumbent on everyone to conduct appropriate research into any company they are considering doing business with. The people operating these scams are thieves, and their only concern is extracting money from gullible people for the purpose of funding their own extravagant lifestyles. They will not hesitate to lie, misrepresent themselves, and their businesses to achieve that end.
Below are some additional resources from ASIC's MoneySmart website:
Report a scam here: https://www.moneysmart.gov.au/scams/report-a-scam