Real life scam stories

Knowing the warning signs can stop you.  Bob is a consultant who lives in Christchurch. He’s invested in shares for many years, owns his own home, and is in KiwiSaver.

Recently, Bob lost $67,000 through a ‘boiler room’ share scam after an overseas company called him, offering him the chance to invest in a pharmaceutical firm.

He said no, but out of interest, researched the company online and the shares offered.

Their website looked legitimate. And at the time, they did not feature on the FMA’s warning lists and weren’t linked to any scams.

One week later, they called Bob again. This time, he decided to invest $8,000.

The online trading account opened for him showed the value of his shares was rising. So over the next few months, Bob invested another $59,000.

He became suspicious when the company told him the shares had been sold, and he would receive funds the following week. He never received any money.

When Bob Googled the company’s phone number, he found the company's name listed with references to a potential scam. Over the following months, online forums showed commentaries about the company and warnings were published on regulators’ websites overseas.

The company continued to hassle Bob telling him he needed to pay $21,000 to get his money released. Bob hasn’t paid this. He continues to receive up to 6 unsolicited calls a day- which he ignores.

The warning signs

• Many scams in New Zealand come via cold calls. Hang up if you get an unsolicited call about an investment offer. 
• If the call is from overseas – be extra cautious. If it is a scam, it’s virtually impossible to recover your money.

Before you invest…

• Speak to a professional adviser
• Check the provider is licensed by us. A licensed provider offers you greater protections. Being on the Financial Service Providers Register (FSPR) does not mean a provider is licensed.
• Make sure the company isn’t on our warnings lists* 
• Avoid being scammed by reading our steps to protect yourself

*Bob (not his real name) contacted us in September 2017. The overseas company he used is not licensed in New Zealand. We add company names to our warning lists as soon as we have enough information to make us realise investors should be wary of them. A warning may not be published for many months after you’re first contacted by a company. Once on the list companies regularly change their names. If you can’t find a company name on our lists, it’s not a guarantee they are safe.
eing scammed - Bob’s story

Diana works full-time and lives in the Bay of Plenty. She is married with children, owns a house, and invests in KiwiSaver and some term deposits. She doesn’t consider herself an experienced investor.

Diana recently lost around US$5,000 investing in binary options.

She clicked an ad on a Yahoo! news article and watched slick videos about how she could ‘make easy money from home’.

Diana decided to give it a go, so she called the company in the video and made an initial payment of US$300. The call centre was based in Scotland, so Diana felt confident her money was safe. Her ‘broker’ said he would call every two days to help her trade.

After a few weeks she was asked to invest US$5,000 to get ‘bonus payments’. Diana went ahead with this second investment, but later felt uneasy and asked to pull out of the trade.

This is when things got ugly.

The broker became very passive-aggressive, telling Diana she couldn’t have her deposit back because she hadn’t reached the required volume of trades and bonuses.

She asked the broker not to contact her again, but he kept calling – usually very late at night. Eventually Diana threatened to call the police, and blocked the broker’s number.

Since then, Diana has received cold calls from other similar companies. She has not had any money returned to her.

Don’t be fooled

• Don’t be tricked into thinking a company is legitimate because their ad appears on a credible website. 
• Take extra care if a company is based overseas and/or not licensed in New Zealand, as it’s usually impossible to get your money back if things go wrong. 
• Always ask if a company is licensed. Registration on the Financial Service Providers Register (FSPR) does not mean a provider is licensed.

Do your homework

• Check our lists of individuals, markets and businesses licensed or authorised to operate in New Zealand before you invest. 
• Read our ‘steps to protect yourself’ to learn how to avoid scams.

*Diana (not her real name) contacted us in March 2017. The binary options company she used is based overseas and not licensed or regulated in New Zealand. The way this company behaved was typical of a scam.

John* is age 53, a chartered accountant and an experienced investor. He owns a property, has KiwiSaver, a company superannuation scheme and invests in New Zealand shares.

John recently lost US$39,750 through a ‘boiler room’ share scam.

A boiler room share scam involves bogus stockbrokers, usually based overseas, cold calling people to pressure them into buying shares that promise high returns. In reality, the shares are either worthless or non-existent.

How John was targeted

John was contacted by an Asian research company doing a survey of New Zealand businesses. A week later, he received another call. This time it was from a trading company based in China asking if he wanted to purchase pre-IPO shares in Alibaba Group. 

After initially saying no, he was contacted again by another more professional and persuasive member of the trading company and convinced to set up a trading account. After looking at the account and believing it was legitimate (having used other New Zealand share trading accounts), he decided to purchase US$3,300 in shares.

John was then contacted by the ‘vice president’ of the fake trading company, who proposed that he buy more shares. This time the offer was for shares Alibaba Group had asked them to sell on behalf of employees who wanted to free up their share packages. These shares were more expensive but John was told the vice president was working on a sales package for all their clients for when the shares listed.

John found online media coverage supporting this story and after doing some online research into the company and the vice president. He felt satisfied the deal was legitimate so made two more share purchases for US$19,950.

A third member of the trading company then contacted him, and remained in contact with John while the deal was finalised. A couple of months later, he told John the deal was complete and asked for a further US$16,500 to convert the share options before they could be sold.

John made the payment and was given a ‘memorandum of agreement’. This is when he noticed the trading company’s commission was suspiciously low, and he could find no record of the company mentioned on the memorandum.

Shortly after this the website closed and John realised he’d been scammed of US$39,750

Since then, John has been contacted at least four more times by people claiming to be from legal firms acting on behalf of Alibaba Group. These callers have asked for further payments to help John recover his money. They’ve even claimed they can still make the share deal happen.

These callers are either part of the same scam or another group of fraudsters who’ve been sold John’s details.

John can’t get any of his money back.

The warning signs

In hindsight, John recognised some warning signs:

• The final question asked by the research company was ‘Do you invest on your own behalf? John now believes that by answering yes to this question he became a target.
• One of the ’trading room’ callers had a strong British accent and claimed to be a compliance officer for the trading company. When John called them back a few days later, the same person answered the phone (rather than a receptionist) and this struck him as suspicious.
• The online trading account had a Reuters newsfeed which suddenly disappeared.

Tips

• It’s okay to hang up if you get an unexpected call about an investment opportunity – it’s illegal to sell investments via ‘cold call’.
• Be aware that sharing personal information with a stranger can leave you vulnerable to fraud or scams. Cold calls of any kind should be treated with suspicion.
• Before investing, check that the business is legitimate. One way to do this is to check that they are licensed to provide financial services in New Zealand.
• It is not difficult for criminals to create very credible-looking websites. Don’t rely on a slick website as proof a business is legitimate.
• Don’t rely on a good rating by the ‘scamadviser’ website. This site says it checks websites for scam risk – but it gave the company that scammed John a high trust rating.

*John is a real investor who contacted the FMA in July 2016. His name has been changed to protect his identity. The company John was scammed by was called PFM-Trading but scammers such as these regularly change their company names.