Pandemic spurs a rise in Fraudulent Investment Schemes

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In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.

That is especially true 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 is just one example of a recent fraudulent investment scheme uncovered by ASIC, and it highlights an alarming rise in such untrustworthy activities targeting investors since the onset of the COVID-19 pandemic.

Fraudulent Investment schemes are a huge and growing problem, and they are 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 fraudulent investment schemes.

These include schemes which are completely fraudulent, 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 supply 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.

Other 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 fraudulent investment scheme 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 fraudulent.

Who is being targeted?

According to the Australian Competition & Consumer Commission (ACCC)’s 2019 report, fraudulent investment schemes cost Australian investors $126 million last year. A further $132 million was lost to business email compromise schemes.

In 2019, people aged 65 and over made the most reports to the ACCC’s 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 167,797 reports, 19,783 involved lost money.

Young people were more likely to report a fraudulent scheme 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 fraudulent schemes.

The competition regulator points out the importance of telling others about fraudulent scheme experiences, with many people avoiding such schemes through word of mouth from friends or family.

How to detect a Fraudulent Investment Scheme

To paraphrase an old saying, if an opportunity sounds like it’s too good to be true, it probably is.

Fraudulent schemes can take many forms and, as noted, are becoming increasingly sophisticated through the use of technology. Some fraudsters 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 a false investment scheme.

  • 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 completely fraudulent schemes, or involve very high-risk investment products or schemes.
  • Also be on alert for fraudulent superannuation schemes 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.

Source : Vanguard July 2020 

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer.We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2020 Vanguard Investments Australia Ltd. All rights reserved.

Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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