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How to identify an investment scam

Discussion in 'Trading/Investing Resources' started by Joe Blow, Nov 11, 2013.

  1. Joe Blow

    Joe Blow Administrator Staff Member

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    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.

    http://www.goldcoast.com.au/article/2012/07/10/430421_gold-coast-business.html

    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


    Cold calling

    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.


    Conclusion

    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:

    https://www.moneysmart.gov.au/scams/investment-scams
    https://www.moneysmart.gov.au/scams/avoiding-scams
    https://www.moneysmart.gov.au/scams/companies-you-should-not-deal-with
    https://www.moneysmart.gov.au/investing/investment-warnings/investment-seminars

    Report a scam here: https://www.moneysmart.gov.au/scams/report-a-scam
     
  2. tech/a

    tech/a No Ordinary Duck

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    Excellent Joe.

    Even so there will be people who
    Read this and STILL get scammed!
     
  3. Gringotts Bank

    Gringotts Bank

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    Good one Joe.

    I have two additions that I use myself. Anyone who approaches me with any sort of proposal is suspect until I am satisfied otherwise. I will do the approaching and I will do the asking of questions, not the other way around. If it's the other way around, they are finished - game over and goodbye. The other thing is if I feel uneasy in any way, that usually means the person is sleazy or a liar and that puts an immediate stop to everything.

    Halifax comes to mind. Talk about sleazy.
     
  4. pixel

    pixel DIY Trader

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    Thanks Joe,
    Brilliant analysis; another reason to make ASF the Numero Uno in Stock Forums.
     
  5. Joe Blow

    Joe Blow Administrator Staff Member

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    Appreciate the feedback everyone!

    I've been slowly putting this together over a couple of months, adding parts as I thought of them. It will be nice to have a thread to send people enquiring about dodgy companies to. Hopefully the thread will also be found by those searching Google for "how to identify investment scam" and other similar search queries.

    Feel free to add anything you feel I have not covered.
     
  6. McLovin

    McLovin

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    Nice work Joe. Maybe make it a sticky too?
     
  7. Joe Blow

    Joe Blow Administrator Staff Member

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    Done.
     
  8. kahuna1

    kahuna1

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    Great post Joe,

    I would add.

    Without risk there is NO possible return. The market prices risk, at times incorrectly, in fact most times incorrectly.

    It is the role of a broker, an investment bank, a salesperson to get you to take on risk. It may be dressed up with lipstick and smell sweet but if it is promising potential returns it ALWAYS will have a risk.

    If someone sells you something and calls it low risk or no risk, walk away. having cash in the bank is a risk in itself. it may be an opportunity cost or being invested in stocks, it could be one day the bank goes bust, unlikely but there is some risk.

    If you are being sold something promising 10% returns vs 3% cash rate and told the risk is small or not there, or a sure thing. Be 100% sure that the risk is not 10% its 20% or 30% or 50%.

    If you do not understand the risk you are taking, I would humbly suggest you don't take it.

    Sadly many people were sold investments call that pre GFC and they were sold them as sweet smelling things that were piles of DOG doo doo. It was not just scams but investment managers, banks and a lot of others. What happens is highly risky assets are bundeld together, sold as less risky ones and priced accordingly. Selling a pile of debt which is bundled with 100 other similar types of debt and called risk free as you have 100 of them in one pile, its just a bigger pile of doo doo.

    Of course conversely NO ONE will get ahead with money NOT at risk sitting in a savings account. it is about understanding the risk and really understanding it.

    If it sounds too good to be true. It is.

    If its sold as risk free but paying massive returns, RUN.

    Cheers

    Mark
     
  9. tech/a

    tech/a No Ordinary Duck

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    Hmmm what was it that you actually added???
     
  10. pixel

    pixel DIY Trader

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    Hi Joe,

    wrt company names, the ASIC site you referred to doesn't seem to show all the useful details; I even drew a blank on some legitimate company names and ABNs.
    http://abr.business.gov.au/Index.aspx is showing more information, including the dates when a company name was registered, its ABN, and whether it has the right to issue GST-compliant tax invoices.

    wrt domain names, some companies may have changed, added, relinquished domain names several times. It also seems that the "whois" service shows the last date a registration has been renewed. I can only go by the result of my own domain name search.
    1. I utilise a web hosting service, which resides in a different State. (Could even be another continent.)
    2. I renew my domain every 2 years; the report shows therefore the last change in May 2013.
    3. On the free report, it says the domain name is older than 2 years. True. It's almost ten years!
    Maybe the additional information is included in the full report, but that costs $49; maybe less if one were a paid-up member; but then - who is?
     
  11. Whiskers

    Whiskers It's a small world

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    Agree on both counts.

    It pays to have a healthy degree of cynicism of new things and maintain your scepticism radar.

    For me at least the comment made by kahuna that "if you do not understand the risk you are taking, I would humbly suggest you don't take it"... is such a golden rule.

    Might be a bit boring if you live in the moment, an adrenaline junkie, life is too short to waste type of temperament... but beats the hell out of being scammed.
     
  12. ColB

    ColB

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    I think the problem is that most of the numnuts that get scammed don't understand what 'understanding the risk you are taking' actually is!!
     
  13. Joe Blow

    Joe Blow Administrator Staff Member

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    Pixel, apologies for not replying yesterday.

    Agree that the http://abr.business.gov.au/Index.aspx website is easier to navigate. ASIC redesigned the ASIC Connect part of their website some time ago and I have never quite gotten used to it, but still use it out of habit. I did a check on my company and am getting a registration date in the "Company Summary", although it does not seem to mention when a company registered for GST. However when I click on the ABN number it takes me directly to http://abr.business.gov.au/Index.aspx.

    The one advantage of the ASIC Connect website is that it lists all company documents lodged with ASIC such as name, address and company officeholder changes. These documents can be purchased and I have had to do this a number of times when investigating suspected scam companies.

    Agree that the initial domain registration date may not be the date it was registered by the current owners, although in my experience most scammers tend to register new domain names rather than pick up ones that have been dropped, although this is not always the case. In fact, sometimes scammers do deliberately search for dropped domains because it makes it look like they have owned the domain name for lot longer than they actually have.

    For this reason, a whois lookup is only useful if the scammers have registered a domain name for the first time and the initial registration date is very recent.

    Another source of whois information is AusRegistry which I have found gives you the Registrant and Tech contact emails, which Domain Tools doesn't with .com.au domain names.
     
  14. konayuki

    konayuki

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    Hi,

    Is there any one dealing with the ATP?
    Are they scammer?
    Is there any one signed up their membership?
     
  15. mabellemurphy

    mabellemurphy

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    Very valuable information about how to prevent your investing a scam company. This is very useful information to stay away on the scam company.
     
  16. Gregfinney

    Gregfinney

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    Great post!!

    I agree to most but to some degree its not all bad for a website to ask for your contact details , I did a Diploma in financial Planning and when I was looking I put my name and phone number into a website to get some information and got a call the next day, I was sceptical at first but went ahead after numerous calls from their "sales guys", had never done an online course before but worked out great and exactly what I was looking for.

    I also did a Diploma in share trading and investment and again put my details on their website and got a call from their guys, they were genuine and no pressure, you either want to educate yourself or not and they give you the details, send you the info leave it to you to make the decision, I too done my research and found barely any bad feedback, confirmed their credentials and went ahead.

    I've read so many stories about people getting ripped off by not doing the proper research and these virtual offices and companies with no FSL's are tell tail signs, but I found the 2 Diplomas I have done great.

    The best decision I made was doing the Diploma of share trading and investment, it's giving me structure and now I trade full time and this all started from putting my details down on their website, I guess since they are both Diploma's they are and RTO's and are a recognised qualification by the government.

    So from my experience getting called from online courses that ask for your mobile number and details aren't all bad, after all its only a phone call what do you have to lose, just don't be naïve and make a decision on the spot .

    You just need to do your research and check for some of the obvious things stated in the post.

    I have found share trading to be exactly what I want to do, its taken a few years to get to the stage I can trade fulltime, education is the key, now I don't have t fight the traffic everyday like most and have more time to enjoy life.

    We all have to start somewhere, just be smart, and what seems to good to be true usually is.


    Happy Trading everyone!!
     
  17. bellenuit

    bellenuit

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    I'm not really sure where to put this, but I found it a very interesting article. The typical investor would not likely have the resources or data access themselves to do this analysis, however Benford's Law is something I had heard of, but really only understood after reading this article.

    It would be fairly easy to prove that it is correct in principle by say taking the population of a town with 100 as the starting point and noting the yearly population if it was subjected to a 10% cumulative annual increase. Then noting (after a population just under 1,000 is reached) the number of yearly populations that begin with 1, 2 etc. You will find that the number beginning with 1 predominates, 2 less frequent, decreasing as you get to 9. Also once the population reaches 1,000 the frequencies between 1,000 (or closest number to it) and 9,999 should be the same as between 100 and 999 give or take some minor rounding and again the frequencies would repeat between 10,000 and 99,999 ad infinitum.

    Even though one would assume that populations are probably as random as you can get, it is clear that they would follow Benford's Law if one were to take a global snapshot at any particular moment in time.

    The Simple Mathematical Law That Financial Fraudsters Can't Beat

    http://www.forbes.com/sites/danielf...ical-law-that-financial-fraudsters-cant-beat/
     
  18. Jethro

    Jethro

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    Hi All, I write this with great pain and the lack of intelligence, I have subscribed to two not 1 investment packages from A Company called One Wealth (2x $19,500.00) and feel almost no not almost I FEEL SICK and stupid after reading the threads on this company. Can anyone help ? does ASIC know about them? Has ACA been notified ? Feeling Stupid, Suicidal, Agro and wanting Revenge. Jethro
     
  19. Julia

    Julia In Memoriam

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    How have they let you down/not delivered on their promises?

    What were the amounts you handed over supposed to pay for?
     
  20. burglar

    burglar

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    Know the feeling, but suicide is not a correct response, as it is irrevocable.
    i.e. If you don't suicide in the morning, something good may happen in the afternoon!

    As for revenge, this may result in your being in gaol, whilst the scammer is still at liberty.

    If you paid with credit/debit card, contact the card supplier, you may have some luck in getting your money back. This post refers:
     
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