How do you identify a scam, before ASIC or the regulators do it for you?

Welcome to Finance and Fury, The say What Wednesday edition where we answer your questions, and sometimes questions from people from the gym – such as today

Is this a scam –

moneysmart have a page on this – which is good resource – give a quick summary of this –

1. but trouble is that while you can read it and research the sort of things to look out for – so can the scammers.
2. Scammers adapt to get around the warnings or rebrand to avoid public scrutiny.
3. Imagine if you got a call from a Nigerian Price who just needs you CC number to buy a taxi ride home, but he will give you $100k in return.
   1. Works? Not today – we are all aware of this trick – but back in the 80s to 90s it was slightly more plausible –
   2. no smartphones to order uber, or mobile phones to call the people he needs, so you would be talking to him on your landline – assuming that he is at a payphone calling random numbers as he doesn’t know right number to call and just spent his last 50c on this call –
   3. hence why this did actually work at one point of time – thankfully in a vast majority of cases people were wary –
   4. but today don’t as many people would give CC details to someone who looks like Eddie Murphy in coming to America if they came up to you on the street.

Today’s ep will be focused on how to avoid a scam through not just a list of things to tick off – but logic and reasoning –

1. The methods of scammers are always going to adapt as we do – but the method to working out if it is a scam doesn’t change
2. Process of knowing it is a scam before it lands on the ASIC or money smart list as a scam, and the tips list

Normal list from MoneySmart – Investment scams and tips to recognise  

1. First warning bell – get a phone call, email or letter from a stranger asking if you would like to invest in a company
   1. Scammers often make the company look ‘real’ – there may be a website and documents that look official but are completely fake. Their tips on questions to ask to find out if it is real:
      1. What is your name and what company do you represent?
      2. Who owns your company?

• Does your company have an Australian Financial Services licence?

1. What is your address?

1. If they avoid these – probably a scam – hang up, ignore all calls and walk away – but who and what questions – very easily answered – What is a good place to start, asking who is better, but why and how are more important when it comes to fully reasoning out a scam, or anything

2. The reward seems too good to be true – ‘get rich quick’ schemes might look good but in reality, only the scammer makes money
3. You need to sign up right away – pressure you by saying you have to decide on the spot – Never agree to this.
   1. Tip – Always ask for documents and read them thoroughly before you make a decision.
4. All good information and tips – what does a scammer do to avoid looking like a scammer?
   1. Probably still call – but they can use a legitimate companies details, or well-rehearsed story/pitch
   2. Long term profitable investment – so not massive instant returns, but higher than the overall market to be enticing – have a reasonable pitch
   3. No pressure to invest – just an introduction call – send you an email with an information pack with historical data, reports, and the companies website – has ABN, list of testimonials, investment information, past performance – slow burn strategy –
5. At the start of the year – got a pretty irate call to the office from one or two people – some scammers were calling random numbers and saying they were from another company that has a similar name to mine, and that we were offering loan refinancing services and wanted to ask for details – people asked for company info and due to the difficulty in understanding what the person on the phone said –
   1. they googled the wrong thing and called our office – so got a few calls through wrong google searches, cant imagine how many the actual company got – Be aware of any random person calling from a legitimate company and asking for information, especially if you have never dealt with that company

One Case – from friend at gym – Call from random company that appeared to have everything, website, performance history, being in the UK as well

1. promise of trading algorithm that has performed at 12% per month on average –
   1. historical data proves it – this sort of return does seem too good to be true – but how do you know for sure –
2. Hard when emotions take over – put in $2k now and get $34k in 2 years – Very tempting – FOMO versus TGTPT – fear of missing out can be bigger
3. Number one rule in looking at a scam – Don’t ask the salesman any questions, but ask yourself ones to reason this out
4. Previous example – This compounding return doesn’t really happen consistently when it comes to shares –
   1. How do we know this is true though? Might happen somewhere? Are there any trillionaires?
   2. Richest person from investments – warren buffet – at 12%pm ROR, $20k today would be $14.5trn in 15 years – then the next year would be $56trn – compounding is amazing –
   3. Question to ask – what are the chances that a person who called me out of the blue can offer me an investment strategy that can make me the richest person to ever live within 15 years? You have your answer

Reasoning Rules to look for a scam – Reason through at every stage – focus on why and how

Research – don’t go to their website only – probably going to have little useful information on it – just misdirection

1. Only time their website useful is for information about who put together their trading template, or manages/operates this behind the scenes and what they say they invest in – non of which scream scam or not – but important to question
   1. Investments themselves –
   2. Promised returns –
   3. Track record of investment managers –
2. Very easy for a company to hide history or just create new entities – Go through ASICs business lookup to see when the company was established, and who owns that company – individual or corporate, or trustee
   1. If there is no ABN – best to avoid – if they have no AFSL – avoid – But if they are there with no complaints – dig through history – went through the one for previous scam – started in Feb 2019, few months ago
   2. Questions to ask – why would a company change names/restructure every few years? Why can’t I find the AFSL number on asics look up?
3. Locations and contact details – previous example of the share returns – have all the contact details – phone hotline, office addresses, mailing, etc. –
   1. Did some digging and their offices are in based in a month-to-month serviced office facility, that is just very discrete in its online marketing as agents take care of finding the clients – Look at records of address in sales or leases/rental – if you can see the location is long term lease contract that is more than a month old it makes it more legitimate – when the listing for the past few years have all been for individual office spaces with reception services – suspicious
   2. Question – Why would a company that has been around for 2 years and is managing money successfully for clients have at best an office cubicle, and at worst letterbox office with virtual receptionists?
4. Fake reviews – The only reviews I could find were in forums – few of the same sort of copy paste scenarios – someone asks a question, saying they were contacted and think it is a scam – then one or two other people jump in saying that their brothers cousin or friend of a friend swears by it – And another is doing it and first week has gone well, etc.
   1. All one person, from separate accounts – clever narrative – media do it – control the question and control the answers – lays out all fears that the average people would have, and people come in as social proof that it is legit –
   2. Question – when are each of the posts made? Do they follow the same script/outline structures?
      1. If you have ever read a real comment section, hopefully you will be able to tell the difference

If it looks legitimate – who has Custody of the investments/funds – who has ownership of funds and which bank account is it linked to –

1. Give me $50k to invest for you, versus receiving advice on how to invest or facilitated on your behalf –
   1. Buy managed fund – you own the shares managers buy – why regulated and monitored – avoid managers investing in new yachts and your investment going to $0 – But you are the owner of the investment still
   2. If you are asked to ever transfer money to their account to invest in something that could be set up inside of an account that you own and they can transact on as third party
      1. There will be legitimate cases when this might need to happen – however, if a financial adviser wants you to transfer the cash for an investment to them for them to then invest for you – warning bell
   3. Question to ask – why isn’t the investment being set up in my name and therefore, I can make the contribution into the investment instead of a bank account of someone else?
2. Guarantees on money back – for upfront costs of losses – The wording for the full refund of the purchase price allows them to pretty easily get out of the repayment.
   1. All of these are impossible to prove incorrect, as based around the back testing of their software it works, and that the information on share prices can be verified by looking it up on the ASX.
   2. Going forward though, there is no guarantee of returns based around original deposits and targets being met. Also, even if the information is incorrect, they can always just claim that the brochures had printing errors and not pay the refund.

I hope this helps – please let me know if you have related questions –

1. Unfortunately, it can be hard to sort out scams from legitimate investment strategies –
2. but using some reasoning and asking yourself the questions to tease out the answers based on what is real – what you can see and understand
3. having no AFSL and promising guaranteed returns is normally the biggest give away that it is a scam
   1. But easy to fake – so ask yourself the questions with why or how, instead of what

Hope you enjoyed it

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