There are lots stories of people who have been the victim of investment fraud. People who have little experience of managing their money are particularly vulnerable to investment fraud.
But it could happen to anyone.
Today we highlight some of the ways you can identify a fraudster and the types of scams they use. Next week we will look at how to protect yourself from investment fraud and what you should do if you or your family or someone you know encounter such a person or scam.
Here are some scams to watch out for:
Unlicensed Selling of Securities
Anyone selling securities without a valid securities authorisation issued by the PNG Securities Commission should be a red alert for investors. Always ask for proof that they have a PNG authorisation.
Internet Scams
Con artists reach millions of victims via the internet. They lie to try and convince you to either send them money or your personal credit card details or other financial information. Many will ask you for personal details such as birth date, identification or passport numbers, or passwords, to steal your identity. Internet fraudsters can operate anonymously from anywhere in the world. This maked them hard to catch. Once you’ve given your money or details to an online scammer it’s likely gone for ever. Double check any information or suspicious emails you receive and don’t give personal details over the internet.
Boiler Room Scams
With this scam you can expect to receive a phone call from someone you don’t know, possibly from another country, claiming to offer you the “chance of a lifetime” to make lots of money. They may say it’s a “sure thing” and encourage you to keep buying their investments. They attempt to persuade you to invest in shares that are either non-existent or so worthless they are impossible to later sell. The fraudsters may provide false share certificates and other documents to make the investments seem credible. Once the fraudsters have got your money they quickly disappear.
Ponzi or Pyramid Schemes
Ponzi Schemes promise high returns then pay the early investors with money raised from later investors. The only people sure to make money are the promoters who run the Ponzi Scheme. Generally, the promoter deals with each investor directly. Once they can no longer attract new investors, the scheme collapses and everyone loses, except the promoter.
Ponzi schemes are sometimes referred to as pyramid schemes, but they are different.
In pyramid schemes the promoter starts off like a Ponzi scheme but the difference is that the promoter encourages each investor to bring in new investors. Those investors are then also encouraged to bring in more new investors thus adding more levels giving the scheme a triangular or pyramid shape. The promoter relies on the each layer of victims to invest their monies to support the previous layers of investors. Inevitably new people stop joining and since it is the funds from the new persons that keep the pyramid steady, the pyramid eventually collapses and there is no more money to be paid out. You and countless others subsequently lose your investment.
Targeting elderly
The elderly are particularly vulnerable to scam artists who pretend to be “nice” or attempt to develop a false bond of friendship. Scam artists prey on the elderly who have difficulty saying “no” or feel indebted to someone who has provided unsolicited investment advice. These financial predators use tactics to make seniors fear running out of money and becoming a burden to their families. They prey upon the loneliness and isolation and availability of some retired or widowed seniors. Seniors (and their families) should carefully check the credentials of investment advisers holding themselves out to be “senior specialists.”
Affinity Fraud
This scam often happens in social groups. Scammers target religious, sporting, ethnic, cultural and professional groups. They quietly join a club, religious or community group. Once they gain the liking and trust of the members in the group, they will try to convince them that their fraudulent investment is legitimate and encourage them to participate. These scammers sell to a few prominent members of the community and then convince the rest of the group to invest by using the names of those prominent members. They will then scam the group members, their friends and families, and quietly disappear.
This scam often goes unreported owing to the fear of public shame by the victims.
Warning signs of investment fraud
There are some common warning signs of investment fraud to watch out for
- If it sounds too good to be true, it generally will be: Be suspicious of anyone who says that an investment will generate unusually high returns. Remember – the higher the return, the higher the risk.
- Guarantees: “This investment is guaranteed …..”. Be suspicious of anyone who guarantees that an investment will perform in a certain way. All investments carry some degree of risk and performance cannot be guaranteed.
- Unregistered products: Many investment scams involve unlicensed individuals selling unregistered securities—ranging from stocks, bonds, or fictitious investments which don’t exist.
- Overly consistent returns: Even the most stable investments can experience hiccups once in a while. Unless the investment is a bond with fixed interest and consistent payments, other investments may not always be consistent.
- Missing documentation: If someone tries to sell you a security with no documentation, (for example, no prospectus) they may be illegally selling securities.
- A pushy salesperson: No reputable investment professional should push you to make an immediate decision about an investment or tell you that you’ve got to “act now.” If someone pressures you to decide on a sale or purchase, simply walk away. Even if no fraud is taking place, this type of pressuring is inappropriate and a warning sign. The more the salesperson pushes, the more alarmed you should be.
Rely on a reputable stockbroker. In PNG, you can either contact JMP Securities Limited (enquiries@jmpmarkets.com) or Kina Securities Limited (wealth@kinabank.com.pg).
The information in this article is general in nature and you should take care to inform yourself about the specific characteristics of a particular investment before making a decision to invest in it. PNGX recommends discussing your investment objectives and needs with a stockbroker or qualified financial adviser.
By following these articles and reading more information available on the PNGX website (www.pngx.com.pg) you can build your wealth and invest in PNG
June 2022
