In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.
That’s especially when the offeror implies it has the personal backing of the chairman of Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), by using his name and photos.
Unfortunately, though, it’s just one example of a recent investment scam uncovered by ASIC, and it highlights an alarming rise in fraudulent activities targeting investors since the onset of the COVID-19 pandemic.
Investment scams are a huge and growing problem, and they’re becoming more and more sophisticated through the use of fake websites, media releases and stolen company logos.
In the past fortnight, regulators including ASIC, the US Securities and Exchange Commission, and the UK’s Financial Conduct Authority have all issued warnings around a surge in investment scams.
They include outright fraudulent schemes, where there are no actual underlying investments involved, and the promotion of crypto currency assets and foreign exchange products, with fake endorsements from celebrities or government agencies.
In the US, there has also been a sharp rise in fraudulent stock promotions and market manipulation, with more than 30 companies suspended since the start of this year. A number of those relate to companies having made false claims of being awarded large medical supplies contracts related to COVID-19.
Fraudsters also have been busy taking advantage of the volatile markets to tout “safe” or “bottomed out” investments in companies that purportedly have interests in commodities such as gold, silver, or oil and gas.
Others activities involve fraudulent investment offers by unregistered companies, with reports by ASIC of companies asking consumers to pay money for financial products or services into different bank accounts each time funds are transferred.
Since the onset of COVID-19, ASIC has detected a 20 per cent rise in the number of investment scam reports from Australian consumers and investors.
ASIC is particularly concerned about the risk to consumers and investors of losing money when buying into crypto-currency assets, with most investment opportunities appearing to be outright scams.
Who is being targeted?
According to the Australian Competition & Consumer Commission (ACCC)’s just-released Targeting scams 2019 report, investment scams cost Australian investors $126 million last year. A further $132 million was lost to business email compromise scams.
In 2019, people aged 65 and over made the most reports to the ACCC’s Scamwatch website, followed by those aged 25 to 34.
However, the highest losses were actually reported by people aged 55 to 64, who lost nearly $30 million last year. The ACCC says this is likely due to this group’s accumulated wealth, coupled with their interest in investment opportunities.
Out of the total of 167,797 Scamwatch reports, 19,783 involved lost money.
Young people were more likely to report a scam that included a financial loss. For people under 18, 26 per cent of all reports involved a financial loss. This age group lost $471,595, an increase of over 170 per cent from 2018.
The ACCC says one piece of good news is that increasing numbers of people are now able to recognise and avoid scams.
The competition regulator points out the importance of telling others about scam experiences, with many people avoiding scams through word of mouth from friends or family.
How to detect an investment scam
To paraphrase a very old saying, if an opportunity sounds like it’s too good to be true, it probably is.
Scams can take many forms and, as noted, are becoming increasingly sophisticated through the use of technology. Some scammers are using fake websites that mimic the sites of legitimate financial institutions.
However, there are multiple ways to greatly reduce your chances of ever being lured into an investment scam.
Beware of any direct or indirect approaches to invest, especially from unknown companies but even from people purporting to be from a well-known company or a government authority.
Types of approaches can be investment cold calls from bogus stock brokers or portfolio managers pretending to promote shares, other investment schemes, or to offer financial advice. Other approaches can include advertisements or invitations to investment seminars designed to promote “exclusive” investment opportunities offering high returns. These can be straight scams, or involve very high-risk investment products or schemes.
Also be on alert for superannuation scams offering to give you early access to your super funds, often through a self-managed super fund. Accessing superannuation is subject to very strict conditions governed by federal legislation.
Never respond to unsolicited messages, calls or emails that ask for any personal information or financial details. ASIC advises to just hang up or delete suspicious emails.
Don’t click on any links or open attachments in emails unless you are completely certain of the authenticity of the sender. You can easily verify website addresses by searching a company separately (without clicking on an email link), or by checking their contact details through other online information sources.
If in doubt, check that the company’s website is displaying its Australian Business Number and Australian Financial Services Licence (AFSL) number. These can be checked using ASIC’s online search registers.
1. https://investor.vanguard.com/retirement/savings/when-to-start. Example assumes 6 per cent returns regardless of actual investment and ignores inflation for simplicity.
Reproduced with permission of Vanguard Investments Australia Ltd
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