Investment scams

Fake companies and investment fraud

Investment scams are often so professional, slick and believable that it can be hard to tell them apart from genuine investment opportunities.

Here we explain how investment scams work and how to protect yourself from them.

How to identify an investment scam

Investment scams can come to you via a phone call, email or social media. They may even be an offer from someone you trust or who is introduced to you by someone you know.

There are three main types of investment scams:

  • The investment offer is completely fake and does not exist.
  • An investment offer does exist, but the money you give the scammer is not going towards that investment.
  • The scammer says they represent a well-known investment company - but they are lying.

In all investment scams, the money you 'invest' goes straight into the scammer's bank account and not towards any real investment. 

Investment scams are growing

The number of investment scams reported to Scamwatch in 2018 increased by 24% from the previous year, according to the ACCC's Targeting Scams report

How scammers get you to invest

To get you to give them your money, a scammer may tell you they're offering: 

  • high, quick returns and sometimes tax-free benefits
  • share, mortgage, real estate or virtual currency investments, 'high return' schemes, option trading or foreign currency trading
  • an opportunity with no risk or low risk, because you'll be able to sell anytime, get a refund for non-performance, have insured or 'guaranteed' transactions or be able to swap one investment for another
  • inside information, the opportunity to invest before a public float or discounts for early bird investors.

Smart tip

Check MoneySmart's list of companies you should not deal with, to see whether they are known scammers.

Warning signs of investment scams

The investment offer may be a scam if the person:

  • does not have an Australian financial services (AFS) licence or says they don't need one
  • rings you repeatedly and tries to keep you on the phone, or emails you a lot to keep you engaged
  • says you need to make a quick decision or you'll miss out on the deal
  • claims to be a professional broker or portfolio manager and sounds professional, but does not have an AFS licence
  • uses a name or claims to be associated with a reputable organisation to gain credibility e.g. NASDAQ, Bloomberg
  • offers you a glossy prospectus or brochures, professional-looking share certificates or receipts, but their prospectus is not registered with ASIC. 

If the investment offer has some of these signs, hang up the phone or delete the email. If you manage to record some of the caller's details please report the offer to ASIC.

Tactics used by investment scammers

Scammers will use a range of tactics to trick you into investing in their company. Some of the common strategies are:

  • Directing you to a fake website - Scammers use highly sophisticated websites and issue fake online press releases that make false claims of outstanding corporate performance. They may provide some victims with logins to view fake investment balances and growing returns. 
  • Stopping you pulling out of the deal - If you try to pull out of the deal, scammers may try to swap your current investment for another one or convince you that your investment will increase in value soon.
  • Threatening legal action - Scammers may threaten you with prosecution or hefty fees to keep you from pulling out of the deal. 
  • Using social media to approach you or your friends - Scammers may message you, display an advertisement in your social media feed, or send you a 'friend' request. They may pose as someone you know or are connected to, in order to gain access to your profile information and send you offers to invest and make quick money. Scammers may also use your information to impersonate you and create a fake social media account to approach people in your friends list. See identity fraud for more information.
  • Artificially inflating the share price  - Scammers buy shares in a small company at a low price, then send out false tips about the company having great prospects. As more people invest, the share price rises and the scammers sell their shares at the peak of the price rise. Then the share price falls and the shareholders are left holding them at the reduced value.
  • Passing your call along the line - Investment scammers use a team of less experienced staff to make the initial call. The junior staff follow a tight script to check your interest. If you take the bait, they hand you over to a more senior person, called a 'closer'. Closers are extremely skilful sales agents and their job is to make you feel compelled to close the deal and send your money. 
  • Calling or emailing you persistently - Investment scammers will call or email you endlessly, or keep you on a phone call for a long time with promises of wealth or opportunities lost if you don't take up their offer. They will not take no for an answer and will ask you about your worries to reassure you. As long as they can keep you talking or emailing, you haven't really said no. 
  • Operating from overseas - Many investment scammers operate from overseas or offer foreign investments, as their activities are illegal in Australia. Overseas scammers target Australians because ASIC does not have international jurisdiction to prosecute them.

For more common scam tactics, see protect yourself from scams

Peter Kell talks about investment scams

ASIC Deputy Chair Peter Kell explains how investment scams work and the ways to identify and avoid them on the ASIC View podcast.

Interviewer: Hello and welcome to ASIC view, the official podcast of the Australian Securities and Investments Commission. On this episode, we will be discussing Consumer Fraud Week 2016, and how ASIC is warning investors and consumers to do some simple checks before they invest their money.

My name is Andrew Williams, and with me this week is ASIC Deputy Chair, Peter Kell. Peter, thanks very much for your time on the podcast.

Peter: Happy to talk to you, Andrew.

Interviewer: The theme of Consumer Fraud Week this year is 'Wise up to scams'. How much of a problem are investment scams in Australia?

Peter: Investment scams will always be a problem because there are always going to be scammers out there targeting consumers, particularly from wealthier countries such as Australia. According to the ACCC's Scamwatch report, a significant increase over the last year, from $12 million to around $24 million in reported losses, and many people over the age of 55 seem to have been the target for these scams. Not surprising, really, because there are many people in that demographic who are looking for higher investment returns in a low interest rate environment. So there will always be scammers out there, particularly based overseas. We'll always need to be on guard.

Interviewer: What are the main kinds of scams that Australians should be looking out for? What form do these scams usually take?

Peter: They can take many forms, but we get, typically, scams falling into about five categories:

  1. The first is overseas cold calling about investment opportunities, and we've seen that take hundreds of millions of dollars in the past.
  2. Another type of scam are overseas calls offering fake credit or loans, so this is where you may not be able to access credit or it will sound like a very good interest rate on your loan. All you've got to do is pay a small upfront fee, and you'll get the loan. But you never see the loan, and you'll never see your fee again.
  3. We see a lot of scams around sports arbitrage, or share trading software, or other sorts of what are effectively gambling schemes based on buying expensive software that are magically going to be able to pick you the winner in any situation.
  4. We see money transfer schemes where people are promising some sort of job, often online, or other opportunity where if you pay what seems like a small upfront fee, you're going to end up with a lot of money.
  5. And finally, fake debt and invoice scams which are often targeted at small business.

Interviewer: Now, you mentioned before that these scams are targeting Australians, people over 55 in particular. What are the kind of things that they're offering that they're seeking to prey on that market with?

Peter: Well, the scams can often be quite sophisticated. It would be unwise for anyone to think that you can't fall for a scam - they're not always silly or amateurish. They are often accompanied by quite sophisticated websites or even paper documentation. So they promise tax-free benefits, quick returns, discounts for early bird investors, what seems like a great return for the payment of a small fee, and no risk or low risks where you can sell any time. That will often be a feature of these sorts of offers. They will, in our experience, very commonly be based outside of Australia, so that in itself is a warning sign - although we have seen instances where the money is actually diverted through an Australian address so it's not always the case that the overseas destination will give the game away.

Interviewer: So an Australian address is not a failsafe for avoiding these schemes, it can still be a scam even with an Australian base?

Peter: Australians as well have operated these scams in the past, so there have been both overseas operations and domestic operations.

The best way to protect yourself if you receive an offer of an investment that sounds really good, and it comes to you out of the blue, hang up. Don't pursue it any further. After all, if someone was to ring you up and offer you a medical diagnosis out of the blue and a miracle cure, would you follow that? I don't think many people would. Well, this is the same sort of thing really, when you think about it. They don't know anything about your financial situation, you don't know anything about their bona fides.

If you want to make an investment, then you should think about your objectives carefully, look at the ASIC website, our MoneySmart website to see what tips are on that site to help you make a sensible choice, and if you need investment advice, go to a licensed adviser. Check that licence number - you can do it on our website. Anyone involved in this area in Australia has to have a licence, and you can check that through our website.

Interviewer: Are there any other questions that you might be able to ask someone if they have called you out of the blue, if you do want to chase it up a bit further to determine whether they may or may not be a scam?

Peter: You should start with the basics: What is your name? What company do you represent? Who owns your company? How did you get my contact details? What is your address? And you can add to that, of course, do you have a licence? The safest thing is to just hang up in the first place. But this might also help you if, for example, we find that some people ring us occasionally because a relative or a friend has been contacted and they're trying to find a way to say to their friend or relative, 'don't send your money'. These are some of the questions that can perhaps help someone avoid a financial tragedy.

Interviewer: Can you talk briefly about an example or a case study of a particular scam? There was one that fell into the category you mentioned before of sports betting scams or sports arbitrage scams that seem to offer this magic software that can enable people to beat the bookies.

Peter: Well, that's a fairly common type of scam over the years. We've seen people who might get a brochure in the mail advertising a computerised system that will generate you extra income while having to do very little work. Generate extra income with opportunities to turn, say $1,000 into $40,000 in twelve months, and that's often supposed to be achievable through software, say on sports betting, perhaps on share market trading.

The idea is that they will send you the software - only a limited number of these packages will be available, and that you need to act quickly. That's one of the other warning signs. In one case we found that the cost of the software was almost $19,000, and then an additional $10,000 had to be provided to open a personal account online. Interestingly, these scammers are clever enough, they often do it in such a way that initially it looks like you're making money. Or, they may even return you some money in the early days to get you hooked, but once you're in, suddenly the losses accumulate and it becomes very difficult to get in touch with people.

The key point here is, and I'll go back to the original starting point of this scam, a massive offer to make money coming at you out of the blue.

Interviewer: Yes, if it sounds too good to be true, it usually is.

Peter: If it sounds too good to be true, it almost certainly is. We see that even in some of these scam offers they try to play on some of the areas that people might currently be interested in. We've seen, for example, offers about investments in environmental companies, or high tech new technology companies. They will sometimes have some minimal information about some of the ways these companies might work in Australia. The scripts are often quite clever, but they will be playing on areas of current interest, or ways that seem like they're opportunities to make a lot of money quickly. Unfortunately life doesn't work like that.

Interviewer: Yes, that's always been my experience. Finally how else can consumers avoid being the victim of a scam? Any tips and tricks to finish off?

Peter: A key part of this issue is that you see some common mistakes that people make. One is that they don't take the time to consider their own investment needs and who they want to deal with when it comes to investments. We've found in the past that people who focus on the investment, rather than the actual type of firm or adviser they want to deal with, they are more likely to run into trouble, because someone can make the investment sound wonderful.

  • Check ASIC's MoneySmart website. It's not going to take you long and, indeed, we've got some of the names there of some of the firms that have been behind scams in the past as well.
  • Check the company is real by calling publicly listed phone numbers or trying to contact them.
  • Make sure that you're dealing with someone who's licensed.
  • Get a second opinion from someone you trust. Not someone within the company or someone they refer you to, but someone you trust. It might be a friend with financial experience, it might be an accountant or a financial adviser. It's partly just to give you a bit of breathing space because often these scammers rely on the idea that you'll get caught up in the heat of the moment or in the emotion of the moment, and that you won't make a rational decision, you'll make an emotional decision.

Interviewer: Absolutely. If you think you have been scammed, please contact your financial institution immediately. You can also report investment scams to ASIC online or by calling 1300 300 630. Peter, thank you very much for your time on the podcast this afternoon.

Peter: Thanks very much.

Interviewer: Listeners can visit ASIC's MoneySmart website, as Peter said, for further information on investment scams. Thanks very much for listening.

Subscribe to ASIC View podcast on PodBean.

How to check an investment is real

Before signing up to any investment, do your homework to make sure it's legitimate. Asking questions and doing some research on the company could save you from losing money to a scam. 

Questions to ask

Check the legitimacy of the person offering the investment by asking them: 

  • What is your name and what company do you represent?
  • Who owns your company?
  • Does your company have an AFS licence and what is the licence number?
  • What is your address?
  • Is the investing prospectus you are offering me registered with ASIC? 

If they try to avoid answering these questions, it is probably a scam. Hang up the phone, do not respond to the email, stop dealing with the person or delete and block them if it is through social media.

But, even if they can answer these questions, it doesn't always mean the investment is legitimate. That's why it's important to do your own checks before investing your money.

Smart tip

No legitimate company would use harassment to get you to invest.

How to do your own research on the company

It is important to do your own research on the company and take the time to seek independent professional or legal advice. Don't rely only on the information the person gives you to make your decision, and do not be pressured to make a quick decision you could regret later. 

If they answer the questions above, you can then take these steps to do your own research:

Why investing overseas is risky

Remember that investing with overseas companies can be risky. Because they are outside Australia, you won't be able to get help if something goes wrong. Companies based within Australia that provide financial services must have an AFS licence, which means you are better protected if things go wrong.

There are plenty of legitimate overseas investments that you can make through mainstream companies based in Australia. Don't part with your hard-earned money unless you understand the risks involved.

How to protect yourself from investment scams

There are many things you can do to make sure you don't fall victim to an investment scam, including:

  • Always get independent financial advice before you invest.
  • Use the information on this page to do your own checks on any investment opportunity. 
  • Recognise the danger signs to help you to identify an investment scam.
  • Don't accept a message or friend request on social media from someone you do not know.
  • Ensure your privacy settings are up to date on your social media accounts.
  • Be wary of random or unexpected contact, particularly if you have replied to something on a website or social media platform.

If you think you have been the victim of an investment scam, you should:

  • report it to ASIC or your local police (include the company name, location and contact details, if you have them)
  • stop sending any more money to the company - be wary of falling for a secondary scam or offers to recover your money. 

Find out more tips on how to protect yourself from scams.

Investment scammers are skilled at convincing people that the investment is real, the returns are high and the risks to your money are low or non-existent. Be suspicious of anyone offering you easy money. There is almost always a catch.

Related links

Last updated: 06 May 2019