1. Investors
  2. Avoid scams
  3. Types of scams

Types of scams

If you think you've been scammed, report it to us.

Advance fee fraud

With advance fee fraud, you’re usually contacted unexpectedly and told about a large sum of money you’re owed.

Examples include an inheritance you were unaware of, a lottery win, or proceeds from shares you own. You’ll be told you need to make a payment before the money can be released.

The payment is usually a lot smaller than the amount you’re supposedly owed, but can still be a substantial amount. 

Affinity fraud

Affinity fraudsters prey on people who trust each other, like members of religious, social, or cultural groups.

They use the trust that exists within these groups to help steal money.

The U.S. Securities and Exchange Commission provides detailed information about avoiding affinity fraud.

Boiler room or ‘cold call’ scams

‘Boiler rooms’ are makeshift offices set up by a team of fraudsters offering non-existent, worthless or overpriced investments. They mostly sell shares but we’re also aware of FX trading, binary options and sports investment schemes being sold in this way.

Members of the boiler room will convince you to make a small initial payment and once they have your money, they’ll introduce many different reasons why you need to make a larger payment.

To make the scam more convincing, you’ll receive calls from ‘senior’ employees like the Vice President or CEO. This gives you the impression you’re a valued client. In reality, it’s other members of the boiler room.

These fraudsters appear professional. By the time you realise it’s a scam, they will have moved on and won’t answer your calls.

3 common signs it’s a boiler room scam

  1. You receive a ‘cold call’ or are contacted by someone you don’t know via email or post. A common tactic is to ask you to take part in a survey and then a few weeks later call you back to say you’re one of the lucky few they’ve chosen to help. It’s not unusual to be contacted multiple times. 
  2. You’re promised a great return– much better than other similar investments. 
  3. You’re pressured to invest quickly to take advantage of the offer.

Ponzi schemes

A Ponzi scheme is where money from new investors is used to pay interest or capital to earlier investors. This gives the illusion the investment is successful and encourages investors to pay more.

The schemes collapse when they stop receiving money from new investors.

We’ve investigated a number of Ponzi schemes in recent years. The largest known scheme in New Zealand to-date was Ross Asset Management. More than 1,200 investors were affected by this scheme and the overall loss was in excess of $115 million.

David Ross, who admitted running the scheme, was sentenced to 10 years and 10 months of imprisonment in November 2013.

Prime bank instrument fraud

In this case, people are invited to take part in a secret market, and are offered 'prime bank' notes or debentures supposedly paying high returns.

This market does not exist and money sent to these schemes is lost.

Share scams

If you receive an unexpected call about an investment offer, it’s most likely to offer you shares. New Zealanders have lost millions of dollars through these types of scams.

3 common warning signs it’s a share scam:

  1. You’ll be offered shares for well-known companies like Apple or Alibaba and told you need to act quickly to benefit – these might be positioned as ‘pre-IPO’ shares
  2. Once you’ve invested, you’re likely to be asked for more money. The fraudsters will provide a reason, for example that the sale can only go ahead if you purchase more shares, or there are taxes to be paid
  3. Sometimes callers will offer you money for shares you already own. You may be offered an excellent price but told you just need to pay an advance or restriction fee.

Software packages and seminars

You may be offered software that uses ‘state-of-the-art analysis’, or the chance to attend an ‘exclusive’ event where you’ll learn the secrets to financial success.

You’ll also typically be promised high returns. These promises are often too good to be true and the only people making money are the sales people.

Learn more about software packages and seminars.