A scam is a plan to trick someone out of something valuable, usually money or personal information. Other names include a con, fraud, rip-off, racket, hustle, sting. It is a form of theft.
Investment scams are specific to financial products and services such as shares, bonds, managed funds, derivatives, foreign exchange and cryptocurrencies, and investing or trading through an online or app-based trading platform.
Scammers can work alone or in groups. They can target groups such as clubs and churches, and individuals including senior citizens. They can even be people you know and trust, from your own community.
Scammers frequently use media and technology to fool people. They may advertise on social media, or use messaging apps to arrange payments. They may have professional websites, with the same names and details as legitimate businesses. They may falsify documents, and even impersonate officials over the phone or email.
What are the warning signs of an investment scam?
They call or email you “out of the blue". Generally, it is illegal to sell financial products (such as shares) this way in NZ. Anyone doing so is breaking the law. Scammers are known to trade information about potential targets, including people who have previously invested in scams or legitimate investments, or shown an interest in investing, e.g. by completing an online survey.
They offer high returns (big profits) with low or no risk of a loss. In finance and investing, higher returns almost always mean a higher risk of losing some or all of the money you originally put in. When we say something’s “too good to be true”, this is usually what we’re referring to.
The offer is for a “select few” or “limited time”. Such claims are often a ploy to make you feel special, like you’re “in on something big”, or to rush you into investing.
They’re not on the Financial Service Providers Register (FSPR). Everyone in New Zealand in the business of providing a financial service must be registered on the FSPR (with few exceptions). Some offshore entities who provide financial services here may also need to register here.
They’re based overseas and/or have no physical NZ address. Scammers are often – but not always – based in countries with little or no policing of scam operators. To register on New Zealand's FSPR you must provide a physical address and may be subject to criminal checks.
There are lots of ‘secrets’ about the offer, eg their boss, location, company bank account. Real businesses will be open about such information and happy for you to share it with others
What types of scams are out there?
Ponzi schemes – where a scammer claims to be offering a legitimate investment. But behind the scenes, they are just taking money from one victim, keeping it for themselves, then using money from other victims in order to pay the first victim back.
Affinity fraud – preys on people who trust each other, such as members of religious, social or cultural groups. They abuse the trust that exists within these groups to steal money.
'Boiler rooms’ – teams of scammers who cold-call strangers offering non-existent, worthless or overpriced investments, then later claim the investment has failed.
Shares and ‘options’ scams – offers of shares or options that they have no intention of buying on your behalf, or in companies that don’t exist or aren’t worth the price being paid.