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Investment scams

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Investing can be a great way to get your money to work for you. Well-chosen investments can grow over time and help you reach your financial goals more quickly. All investments carry some degree of risk though and some investment opportunities are riskier than others.

Preying on the potential of high returns, investment scams are one of the most frequent type of fraud reported to the Australian Consumer Complaints Commission’s Scamwatch website, comprising over 40% of all scam reports made in 2019.

Investment cold calls

Investment scams often begin with an unsolicited call from someone claiming to be a financial adviser or investment broker promising very high returns with little risk. The promises may sound too good to be true, and it’s likely that they are.

Callers may spend considerable time building up their credentials, including sending through official looking documentation to convince victims of their legitimacy. What they are unlikely to be able to provide is an Australian Financial Services Licence (AFSL) number, which is required to deliver personal financial advice within Australia.

If you do receive a cold call or respond to advertisements offering an investment opportunity, it’s a good idea to ask questions such as:

  • What is the name of your company?
  • Who owns your company?
  • What is your address?
  • Do you have an Australian Financial Services Licence?
  • What is your AFSL number?

If they can’t answer these types of questions or claim that they don’t need an AFSL to offer you advice then you should end the conversation.

Two valuable resources to help check the validity of anyone you are speaking to are:

  1. The Australian Securities and Investment Commission’s database of AFSL licencees.
  2. The Government’s Moneysmart database of ‘companies you should not deal with’.

Types of investment scams to watch out for

Fraudsters often present scams as investment opportunities that few other people know about and that need to be taken advantage of now, or you may miss out.

Common investment scams include:

  • Opportunities to invest in little-known companies ‘poised’ for significant growth. These are often ‘over the counter’ stocks that aren’t traded through stock exchanges like the ASX or the New York Stock Exchange. It can be difficult for Australian investors to find information on these companies and the true value of shares. A common outcome of this fraud is that when cold callers stop promoting the stocks, the price drops and investors cannot sell their shares. Victims are left with useless stocks and any money invested is lost.
  • Trading in binary options involves trying to predict which way the price of a stock will move and placing a bet on the outcome. If the price of the asset moves in the direction you predict, you win, if it moves in the other direction, you lose. Scammers will often help victims ‘win’ a few initial trades, which results in a false sense of security, and then encourage the victims to make larger bets which they are likely to lose. Once a victim has lost their investment, it’s common for their broker to stop taking their calls and disappear before rebranding and continuing under a new name.

Sports and betting scams

Following a similar pattern to the investment scams listed above, sports betting scams appear to offer guaranteed returns with minimal risk. Common sport and betting scams include:

  • Prediction software, which claims to predict the outcome of a sporting event or horse race based on a variety of factors including historical results, existing bets in the market and the weather.
  • Sports investment schemes, often called ‘sports trading’ or ‘sports arbitrage’ which involve placing bets on both outcomes of a sporting event, with the intention of making a profit regardless of the outcome. Victims are often required to pay significant ongoing fees to participate in the scheme and it can it can take years to recoup the cost of the initial joining fee.

Scams like this may appear legitimate, but frequently the only winners are those perpetuating the scheme.

Cryptocurrency scams

Cryptocurrency is new to most Australian investors, which can make it difficult to differentiate legitimate opportunities from potential fraud. As well as the investment risks that any new form of investment poses, there are also a range of dishonest practices to look out for:

  • Cryptocurrency trading ‘bots’ offering guaranteed returns and often promoted using ads featuring celebrities. Fraud victims are asked to deposit money into an account to make trades but are frequently unable to withdraw it, even if the trades indicate that they have made money.
  • Fake cryptocurrency exchanges, where a legitimate-looking website appears to present the opportunity to invest in cryptocurrencies but which actually places no trades and steals the account balance.
  • Cryptocurrency exchanges being hacked – if you have ventured into the world of cryptocurrency, it’s advisable to keep any cryptocurrency investments offline in a ‘cold wallet’, rather than holding them online where they may be vulnerable to being hacked and stolen.
  • Pump and dump schemes – small startup cryptocurrencies, known as ‘alt coins’, are traded in high volumes to inflate their values, which then crash once the artificial trading ends.

If you are considering investing in cryptocurrency then it can a good idea to only use major cryptocurrency exchanges and invest in well-established coins until you are familiar with the market.

How to keep yourself safe from investment scams

  1. Always use a licensed provider. Anyone providing financial advice in Australia must have an Australian Financial Services Licence (AFSL), which is issued by the Australian Securities and Investments Commission.
  2. End the conversation if someone is putting pressure on you to make a decision.
  3. Ignore unsolicited offers - it’s OK to hang up on someone who you are suspicious of.

If you have been targeted by a scam relating to your Qudos account, visit our webpage Reporting Scams to find out who to contact.

  Disclaimer:

Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557 AFSL/Australian Credit Licence 238 305. The information in this article is of a general nature and has been prepared without considering your objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances.