Money: Don't get taken for a ride

By MARK FRYER

Shock news! Not everyone who wants to help you invest your money is as pure as the driven snow.

This obviously comes as a revelation to some investors, who hand their hard-earned cash over to "advisers" of dubious intent, plausible callers from abroad and purveyors of "confidential" schemes promising extraordinary returns.

But before paying anything to anyone, it's worth reminding yourself that yes, even in innocent New Zealand, investment fraud is alive and well.

The scale of the problem is impossible to measure, but here's a hint: one local agent for an apparently fraudulent scheme who was being monitored by the Securities Commission in late 1999-early 2000 sent $500,000 to the Bahamas in just two or three months.

If you're a victim, the chances of getting your money back are limited at best. Much better to be cautious about who you deal with in the first place.

To help you stay out of trouble, here's a guide to some of the scams doing the rounds.

Out of Africa


"Nigerian letters" have been duping investors worldwide for at least 20 years.

These days they aren't always from Nigeria - Angola, Ghana, Togo, Liberia, Sierra Leone, Ivory Coast, Zimbabwe and South Africa are among the other sources - and they often arrive by e-mail or fax.

While there are endless variations, the writers typically claim to have a great deal of money that they can't get out of their home country. They need to move the funds through an overseas bank and will pay a generous commission for your account details.

If you respond, you'll be told the Nigerians need money up front, maybe as an "advance fee" or "transfer tax."

If you pay, there will be more fees, delays and complications, until you finally get tired of sending good money after bad.

The letters can be laughably amateurish, but even sophisticated investors have been taken in. Former Citibank manager Graeme Rutherfurd was sentenced to six years and five months' jail last year after conning five friends out of $7 million and losing it in a Nigerian investment scam.

Prime beef


Did you know there is a secret investment market, known only to the rich, that pays huge returns?

Well no, there isn't, but it's a popular claim among fraudsters pushing so-called "prime bank" investments.

Beware of any deal that uses that phrase, or where returns supposedly come from a "top bank," "major world bank," the "top 100 world banks," "top 25 European banks" or variations thereon.

Even if they don't use those words, be wary of any investment promising unusually high returns, offers that are "private" and must be kept confidential, or schemes that have no investment statement or registered prospectus.

Most of these scams appear to be overseas-based, says Norman Miller, senior executive (operations) with the Securities Commission. But they are often sold by locals posing as "investment advisers."

Cold calls, hot tips


This scam starts with a phone call from overseas. The caller knows of a great little company whose shares are cheap. But soon they're going to do something that will send the price soaring.

Why not get in now and make a quick profit? About here a question should occur; if these people really have this information, why are they sharing it with a total stranger?

If that question doesn't occur, and you pay up, you may never see anything in return. When you try to contact your "broker," you'll find him suddenly elusive. If your money is used to buy shares, the promised good news will fail to materialise and the price will slump.

These fraudsters often bolster their chances by using names which sound similar to legitimate brokers, or by "borrowing" real brokers' names.

Don't be fooled if shares they tip do, in fact, rise in price; fraudsters often manipulate a company's shares, pushing them up to attract investors then dumping them.

After the original scam there may be a follow-up.

New Zealanders who bought shares from overseas brokers have recently been approached by a firm calling itself Marlborough Acquisitions, which claims to have a buyer for those shares, says the Securities Commission.

The catch? Before the shares can be sold, the victim has to pay a fee. Marlborough Acquisitions even reassures potential victims by inviting them to contact an agency called "Securities and Registration Compliance," which assures them the deal is legitimate. The only trouble is, there is no such regulatory agency.

If you're tempted to buy shares in the tiny US companies usually touted by the cold callers, the US Securities and Exchange Commission has a few tips: make sure the broker is licensed, check the stock price independently, ask for written information about the company, including a prospectus and recent financial statements, don't assume the caller is from the firm they say they're from and be wary of any unusual banking instructions.

Or hang up and stick to brokers you know.

You're a winner!


Another perennial scam. The usual pitch is that you have already won a prize but to claim it you must first send in a small "administration" or "registration" fee.

Chances are you won't see any prize, or your money, again.

Many overseas lottery tickets are also sold in New Zealand. The Consumers' Institute warns against buying them, as many are promoted by fraudsters and there's a good chance you'll never receive any tickets.

See the pyramids


The line between pyramid schemes (illegal) and multi-level marketing (legal) isn't always clear-cut.

The main distinction is that the income promised by pyramid schemes comes primarily from recruiting new members, rather than from selling goods or services.

The people at the top may make money, but ever-increasing numbers are needed at each level of the pyramid, which means the pool of potential recruits is soon exhausted.

Caught in the net


While many internet ripoffs are just old favourites dressed up in high-tech clothing, the net has spawned new breeds of investment fraudsters.

Among them are the stock promoters who work through the hundreds of online newsletters, bulletin boards and chat groups that have sprung up as a way of exchanging sharemarket information.

Many online newsletters are legitimate, but others are vehicles for fraud. When they tout a "hot" stock it's because they already own the shares or because someone is paying them for their kind words.

Bulletin boards and chat groups, which allow users to exchange hot tips, are also prime territory. Participants can hide behind fake names and it is easy for a single fraudster using multiple identities to create an air of excitement around a share they want to boost.

The US Securities and Exchange Commission says people should not invest solely on the basis of what they see in an online newsletter or bulletin board, especially if the investment involves a small company whose shares don't trade in great volume.

And the rest


Frauds are as limitless as the human imagination.

False invoice scams bill you for goods you never ordered.

Work-from-home schemes promise the chance to earn big money working your own hours but often require an up-front fee, and frequently exaggerate your potential earnings.

Then there are the "surefire" systems for picking winners, on the sharemarket or at the racetrack.

Just remember - if it sounds too good to be true ...

Forewarned is forearmed


The internet may be fertile ground for fraudsters, but it also offers a wealth of advice which can help save you from being conned. For a list of current scams circulating in New Zealand, try:

* The Ministry of Consumer Affairs: click on "scamwatch."

* The Securities Commission: click on "Invest Prudently."

* The Consumers' Institute: click on "Scams & Ripoffs."

All three sites also offer general advice on how to avoid getting caught.

The Australian Securities and Investments Commission has lots of information on the various types of scams. This site also features a long list of overseas "brokers" who have targeted Australians (click on "cold calling ... "). Many of the names will be familiar to victims here.

If you're called by an overseas broker, the simplest answer is to hang up. But if you're tempted to buy US shares, you can at least do some independent research at the Nasdaq website. This site has prices and basic company information for shares traded on the New York, American, Nasdaq and Over the Counter markets.

If you want to do research on a broker, or file a complaint, check out US-based brokers at NASD Regulation. Some information on US brokers is also held at the state level; for advice on who to contact try North American Securities Administrators Association and click on "Find Regulator."

To contact regulators in other parts of the world, try International Organization of Securities Commissions and click on "membership lists" - but be warned that regulation isn't exactly rigorous in some countries.

The US Securities and Exchange Commission also has useful information on how to avoid getting scammed. Click on "Online Publications" under the "Investor Information" heading.

* Contact Personal Finance Editor Mark Fryer at: Business Herald, PO Box 32, Auckland. Phone: (09) 373-6400 ext 8833. Fax: (09) 373-6423. E-mail: mark_fryer@nzherald.co.nz.


Links


The Ministry of Consumer Affairs

The Securities Commission

The Consumers' Institute

Australian Securities and Investments Commission

Nasdaq

NASD Regulation

North American Securities Administrators Association

International Organization of Securities Commissions

US Securities and Exchange Commission