A scam story

Being involved in finance for many years has meant that, unfortunately, we have come across customers who have fallen victim to investment scams.

On one occassion a customer had substantial equity in their home in Sydney. It was just before the recent property boom and they were looking to make a further investment in real estate. They obtained a loan facility so they could be in a position of strength to make an offer on a house when appropriate.

The loan facility was established and they set about looking for suitable properties. During their search they came across a company offering investments in 'offshore vehicles' that were producing very high returns - 15 to 20 per cent. Our clients visted their very impressive offices and checked out their web site and everything looked good. Despite our protests to get further opinion our customers invested their entire borrowings with this company.

For a while everything looked good. The promised dividends arrived every month and our clients couldn't believe their luck. But after about four months the payments stopped and the company dissappeared.

Unfortuneatly these people found themselves victim of a classic Ponzi scheme. This is where some one makes a claim that they can invest your money and provide returns, substantially higher than that offered by other standard investment products. Once you invest, you are rewarded for your 'shrewd' decision by the dividend payments that come in each month as promised. Everything looks good and you are making money! What this can do is make you an advocate - a sales person for the investment - and you tell your freinds and they become involved too, investing their savings or loans.

At some point the money invested reaches an amount that satisfies the scammer and they leave town. You become aware of this development when your monthly dividend payment doesn't arrive but by then its too late. The flashy offices are deserted, the website is down and the phones don't work. Suddenly you realise that what you thought of as exceptional dividend payments were in reality, only some of your initial investment being returned to you.

This is only one of a dozen stories of people we have come across who have been defrauded. They are all very competent, decent, honest people. The trouble is, the people who perpetrate these frauds are ruthless, professional con artists.

Don't give your hard earned money to anyone for any reason with out consulting some one esle about your intentions. Please, please be guided by the advice of professionals. If something seems to good to be true - it usually is.

Avoiding Scams

In all the ways we manage and use money, it is important to protect ourselves from loss or detriment. This is where we need skills to manage the various risks that occur throughout our lives.

A popular belief that makes people vulnerable to scams is the idea that there are secret short cuts to wealth that are only known by certain financial “gurus”. The offers these types of people make often vary but tend to involve unusually high rates of return on investment. Believing that all businesses must be legitimate and that wealth or other benefits can be obtained through special tricks can place you at risk.

Before you invest money with anybody you should do these things first:

1. Ask for the names of organisations that they are members of. People dealing with money and investments usually belong to well known government and industry bodies who could testify to their membership and conduct.
2. Ask for written testimonials or verbal references from customers.
3. Check government regulators like ASIC and state Offices of fair Trading.
4. Seek the advice of a professional you know and trust like your accountant, solicitor or financial planner.

The Australian Securities and Investments Commission http://www.asic.gov.au/ allows you to search a company and establish when it was formed, check disqualified persons, and provides alerts on recently uncovered scams and other useful consumer information through its affiliate site FIDO at http://www.fido.gov.au/ .

State government Fair Trading offices also provide information on bogus investment schemes. Check the Queensland Office of Fair Trading at http://www.fairtrading.qld.gov.au/ . You can also look at other statement websites in similar departments for alerts on recent scams as well as other useful information on consumer protection.