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Real life scam stories

Diana* lost US$5,000 through binary options

Spotting an investment scam - John’s story

 

Diana* lost US$5,000 through binary options

Diana works full-time and lives in the Bay of Plenty. She is married with children, owns a house, and invests in KiwiSaver and some term deposits. She doesn’t consider herself an experienced investor.

Diana recently lost around US$5,000 investing in binary options.

She clicked an ad on a Yahoo! news article and watched slick videos about how she could ‘make easy money from home’.

Diana decided to give it a go, so she called the company in the video and made an initial payment of US$300. The call centre was based in Scotland, so Diana felt confident her money was safe. Her ‘broker’ said he would call every two days to help her trade.

After a few weeks she was asked to invest US$5,000 to get ‘bonus payments’. Diana went ahead with this second investment, but later felt uneasy and asked to pull out of the trade.

This is when things got ugly.

The broker became very passive-aggressive, telling Diana she couldn’t have her deposit back because she hadn’t reached the required volume of trades and bonuses.

She asked the broker not to contact her again, but he kept calling – usually very late at night. Eventually Diana threatened to call the police, and blocked the broker’s number.

Since then, Diana has received cold calls from other similar companies. She has not had any money returned to her.

Don’t be fooled

  • Don’t be tricked into thinking a company is legitimate because their ad appears on a credible website. 
  • Take extra care if a company is based overseas and/or not licensed in New Zealand, as it’s usually impossible to get your money back if things go wrong. 
  • Always ask if a company is licensed. Registration on the Financial Service Providers Register (FSPR) does not mean a provider is licensed.

Do your homework

*Diana (not her real name) contacted us in March 2017. The binary options company she used is based overseas and not licensed or regulated in New Zealand. The way this company behaved was typical of a scam.


 

Spotting an investment scam - John’s story

John* is age 53, a chartered accountant and an experienced investor. He owns a property, has KiwiSaver, a company superannuation scheme and invests in New Zealand shares.

John recently lost US$39,750 through a ‘boiler room’ share scam.

A boiler room share scam involves bogus stockbrokers, usually based overseas, cold calling people to pressure them into buying shares that promise high returns. In reality, the shares are either worthless or non-existent.

How John was targeted…

Initially John was contacted out of the blue by an Asian research company doing a survey of New Zealand businesses.

A week later, John received another call. This time from a trading company based in China asking if John wanted to purchase pre-IPO shares in Alibaba Group. After initially saying no, he was contacted again shortly after by another more professional and persuasive member of the trading company and convinced to set up a trading account. After looking at the account and believing it was legitimate (having used other New Zealand share trading accounts), he decided to purchase US$3,300 in shares.

John was then contacted by the ‘vice president’ of the fake trading company, who proposed that he buy more shares. This time the offer was for shares Alibaba Group had asked them to sell on behalf of employees who wanted to free up their share packages. These shares were more expensive but John was told the vice president was working on a sales package for all their clients for when the shares listed.

John found media coverage supporting this story and after doing some online research into the company and the vice president, he felt satisfied the deal was legitimate. He made a further two share purchases to the value of US$19,950.

At this point a third member of the trading company got in touch, and remained in contact with John while the supposed sales deal was finalised. A couple of months later, he advised John that the deal was complete and asked for a further US$16,500 to convert the share options before they could be sold.

John made the payment and was issued with a ‘memorandum of agreement’. At this point he noticed that the trading company’s commission was suspiciously low and he could also find no record of the company mentioned on the memorandum.

Shortly after this the website closed and John realised he’d been scammed of US$39,750

Since then, John has been contacted at least four more times by people claiming to be from legal firms acting on behalf of Alibaba Group. These callers have asked for further payments to help John recover his money. They’ve even claimed they can still make the share deal happen.
Sadly, these callers are either part of the same scam or another group of fraudsters who’ve been sold John’s details. 

The fact is, John has no means of recovering any of the money he has lost.

The warning signs…

In hindsight, John has noted the following warning signs:

  • The final question asked by the research company was ‘Do you invest on your own behalf? John now believes that by answering yes to this question he became a target.

TIP: Be aware that sharing personal information with a stranger can leave you vulnerable to fraud or scams. Cold calls of any kind should be treated with suspicion.

  • One of the ’trading room’ callers had a strong British accent and claimed to be a compliance officer for the trading company. When John called them back a few days later, the same person answered the phone (rather than a receptionist) and this struck him as suspicious.

TIP: Before investing, check that the business is legitimate. One way to do this is to check that they are licensed to provide financial services in New Zealand.

  • The online trading account had a Reuters newsfeed which suddenly disappeared.

TIP: It is not difficult for criminals to create very credible-looking websites. Don’t rely on a slick website as proof a business is legitimate.

*John is a real investor who contacted the FMA in July 2016. His name has been changed to protect his identity. The company John was scammed by was called PFM-Trading but scammers such as these regularly change their company names.

As part of his research John looked at the scamadviser website. This site claims to assess websites for scam risk but should not be relied on. The trading company that contacted John was given a high trust rating by this site.

John’s story shows how anyone can be caught out by an investment scam, even experienced investors. In fact, capable investors are often more likely to be targeted.

If you receive an unexpected call about an investment opportunity, hang up. Don't engage the caller as they'll use their skill to persuade you to part with your money.

Read our steps on ways to protect yourself.  

If you think you've been scamed, you can report it to us.