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…
Initially John was contacted out of the blue by an Asian research company doing a survey of New Zealand businesses.
A week later, John received another call. This time from a trading company based in China asking if John wanted to purchase pre-IPO shares in Alibaba Group. After initially saying no, he was contacted again shortly after 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 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. He made a further two share purchases to the value of US$19,950.
At this point a third member of the trading company got in touch, and remained in contact with John while the supposed sales deal was finalised. A couple of months later, he advised John that 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 issued with a ‘memorandum of agreement’. At this point he noticed that the trading company’s commission was suspiciously low and he could also 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. Sadly, these callers are either part of the same scam or another group of fraudsters who’ve been sold John’s details.
The fact is, John has no means of recovering any of the money he has lost.
The warning signs…
In hindsight, John has noted the following 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.
TIP: 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.
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.
TIP: 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.
The online trading account had a Reuters newsfeed which suddenly disappeared.
TIP: 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.
*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.
As part of his research John looked at the scamadviser website. This site claims to assess websites for scam risk but should not be relied on. The trading company that contacted John was given a high trust rating by this site.
John’s story shows how anyone can be caught out by an investment scam, even experienced investors. In fact, capable investors are often more likely to be targeted.
If you receive an unexpected call about an investment opportunity, hang up. Don't engage the caller as they'll use their skill to persuade you to part with your money.
