Types of scams

Advance fee fraudsters usually contact you unexpectedly to tell you about a large sum of money you are owed.

Examples include an inheritance you were unaware of, a lottery win, or proceeds from shares you own. However, they will tell you that you need to make a payment before the money can be released.

The payment is usually a lot smaller than the amount you are supposedly owed, but can still be a substantial amount. 

Affinity fraudsters prey on people who trust each other, such as members of religious, social, or cultural groups.

They use the trust that exists within these groups to help steal money.

The US Securities and Exchange Commission provides more information about avoiding affinity fraud.

‘Boiler rooms’ are makeshift offices set up by a team of fraudsters offering non-existent, worthless or overpriced investments. They mostly sell shares but are also involved in FX (foreign exchange) trading, binary options and sports investment schemes.

Boiler room scammers will try to convince you to make a small initial payment and once they have your money, they will introduce many different reasons why you need to make a larger payment.

To make the scam more convincing, you may receive calls from ‘senior’ employees like the Vice President or CEO. This gives you the impression you are a valued client. In reality, it is other members of the boiler room.

These fraudsters appear professional. By the time you realise it’s a scam, they will have moved on and won’t answer your calls.

Look out for the signs:

• You receive a ‘cold call’ or a stranger emails you.  A common tactic is to ask you to take part in a survey and then call you back a few weeks later to say you are one of the lucky few they have chosen to help. They may contact you multiple times. 
• They will promise you a great return– much better than other similar investments. 
• They pressure you to invest quickly to take advantage of the offer.

Scammers may try to win your trust by saying they are regulated by an organisation that sounds legitimate. They may even be able to link to a list on a fake ‘regulator’ website.

We are the only real regulator for investment products and services in New Zealand. To check who the legitimate regulators are in other countries, visit the IOSCO (International Organisation of Securities Commissions) website.

Some products and services are legitimate but we believe there is a high risk of becoming a victim of a scam or fraud. Be wary of the following high-risk products and services:

• FX trading for profit, particularly through companies based overseas. These companies are not regulated in New Zealand and it can be very difficult to recover your money if you experience problems with them.
• Binary options. Winnings may be withheld and trades manipulated without your knowledge.
• Cryptocurrencies. Scammers promote cryptocurrency sale and exchange as a way to catch you in phishing scams and upfront payment scams as well as various forms of investment scams.

A Ponzi scheme uses money from new investors to pay interest or capital to earlier investors. This gives the illusion the investment is successful and encourages investors to pay more.

The schemes collapse when they stop receiving money from new investors.

The FMA has investigated a number of Ponzi schemes. The largest to-date was Ross Asset Management. This scheme affected more than 1,200 investors and the overall loss was more than $115 million.

The man who ran the scheme, David Ross, was jailed for nearly 11 years in November 2013.

Fraudsters invite people to take part in a secret market, offering 'prime bank' notes or debentures supposedly paying high returns.

This market does not exist and money sent to these schemes is lost.

If you receive an unexpected call about an investment offer, it is most likely to offer you shares. New Zealanders have lost millions of dollars through these types of scams.

3 warning signs it’s a share scam:

1. You’ll be offered shares for well-known companies like Apple or Alibaba and told you need to act quickly to benefit – these might be positioned as ‘pre-IPO’ shares
2. Once you have invested, the fraudsters will ask you for more money. They may tell you that the sale can only go ahead if you purchase more shares, or there are taxes to be paid
3. Sometimes callers will offer you money for shares you already own. They may offer you an excellent price but say you need to pay an advance or restriction fee.

Sales people may offer you software that uses ‘state-of-the-art analysis’ or the chance to attend an ‘exclusive’ event where you’ll learn the secrets to financial success.

They will typically promise you high returns. These promises are often too good to be true and the only people making money are the sales people. If you buy the software, it may not be delivered, or it does not work.