How to protect yourself from investment scams

What are investment scams?

According to an Australian Competition and Consumer Commission (ACCC) Report, opens in new window,  investment scams caused the most financial loss of any scam type in Australia in 2022. They are sophisticated and can take many shapes and forms.  Increasingly criminals are impersonating real financial service companies or banks and their employees, making these scams very hard to detect. This guide will inform you of the most common types of investment scams, and arm you with the facts needed to make smart investment decisions.

How big is the problem?

The ACCC Report, opens in new window states that Australians lost more than $1.5 billion to investment scams in 2022. Investment scams made up more than 66% of financial losses reported to Scamwatch, and they show no sign of declining. Reported losses to Scamwatch increased by 112.9% compared to the previous year.

Common investment scams to watch out for

Investment scams might take different forms. Here are some of the most common:

• You receive a call, social media message or email from a ‘financial advisor’ associated with a well-known financial planning company, offering an amazing investment opportunity. These investment opportunities may involve shares, real estate, term deposits, bonds, mortgages, options, foreign currency trading, or crypto currencies and many more. You investigate the company and it’s registered on ASIC and other government websites. The ‘financial advisor’ emails you a prospectus. However, the ‘financial advisor’ is impersonating someone working within the firm and the official documents of the company. On closer inspection, you discover the email address of the real financial advisor is slightly different and the information provided to you was false.
• You receive a call or email from a   ‘financial advisor’ offering amazing investment opportunities with high returns and a low risk. In reality, this ‘advisor’ is unregistered and intends to steal all the money you invest.
• You’re encouraged to invest in cryptocurrency promising quick and high returns by an ‘investment advisor’ or a ‘romantic partner’. An account is set up in your name, which holds your invested crypto and ‘password’. In reality a criminal holds your cryptocurrency in an account they have control of, and steals the funds from you.
• You see a social media post or a message about making money through a new investment opportunity or cryptocurrency. This post may be by a well-known celebrity, or sent directly by an ‘investment advisor’ or ‘romantic partner’, or even a close friend. In reality, the investment is worthless and set up by criminals to steal your funds. Criminals may have hacked your friends’ accounts to send these messages too. It’s also rare for celebrities to endorse any kind of investment opportunity. 
• You’re invited to download an app promising high returns for investing funds. The apps often encourage people to sign up friends and family for further commissions, and complete in-app tasks to increase their returns. Two known examples are “Hope Business” and “Wonderful World”.
• Someone offers to help you recover funds for an upfront fee. This is called a ‘funds recovery scam’.

Investment scams – a case study

Meet Emma and Ben

NAB customers Emma and Ben (names have been changed) are married and own a successful business in central western Queensland. With two young children and a growing client base, the couple began to consider investment strategies to support their three main financial goals: early retirement, a university fund for their children, and a sailing trip around the Mediterranean.

“We just wanted to make sure we were making smart decisions with our money,” Emma explained. “I really wanted to make sure that we were planning and had a strategy in place to reach our goals.”

A scammer makes contact

After some initial online research, the couple found several articles and forums on Bitcoin investment. It seemed like a good way of making money, but Emma and Ben wanted to seek some advice first. They just didn’t know who to ask.

A man named James then contacted Emma via an investment forum she had subscribed to. He claimed to be a trader and offered a free introductory phone meeting to discuss investment strategies. He sounded convincing and his website had good customer reviews and a credible London address, too.

An initial investment

“We opted in and went ahead with the one-hour free meeting, figuring we had nothing to lose. And, to be honest, James our broker was so impressive, we were in hook line and sinker,” said Ben. “The starting investment was only $2,000 and was being invested in new ‘tech stock’, which was dealing with emerging crypto currency. We saw dollar signs because, like many, we had read about people making millions off small investments, so it seemed pretty low risk.”

After the initial investment, Emma and Ben logged into their portfolio page. It had doubled in just a few days. James told them they were in a peak growth phase in which the purchase cost was low but increasing each day. The excited couple, predicting they were only months away from achieving their financial dreams, agreed to invest another $20,000.

Things take a turn

But things started to turn sour. James began ringing daily – sometimes several times a day – urging them to invest all their savings, totalling $72,000. Convinced that they were on a winner, they invested a further $50,000. And, to make investing easier, they also allowed James access to their internet banking so that he could transfer the investment funds himself.

The next day, James rang with bad news - their investment was dropping. Over the next few days he made panicked calls to Emma and Ben with devastating news: the shares were in free fall. Not only had the couple lost their gains, they had lost most of their original investment. According to James, the only way to recover was to take a loan out on their house, and invest in another of his companies.

By now James was calling, texting and emailing almost hourly. “We couldn’t catch a breath,” Emma said. “The pressure was immense, now we were just focused on getting back to square one and we were in such a panic. I couldn’t sleep at night.”

Life savings lost

Faced with losing their initial investment, Emma and Ben applied for a loan of $150,000 from their bank. On James’ advice, they claimed it was for a new car and caravan. As soon as the money was available, James logged in to their internet banking and transferred the amount over to the investment company. Ben and Emma waited for the next update.

What happened?

They never heard from James again. Many calls, emails and text messages were left unanswered. They reported the matter to the police, and the officer on duty checked the MoneySmart list of companies you should not deal with, opens in new window. She found the details of James’ company listed, and let Emma and Ben know they had fallen victim to an investment scam.

Ben is still angry. “They have almost ruined us!” he said.  “It has impacted our relationship, our business, and the future of our family. Mostly, I just can’t believe that we fell for that slick sales pitch. Not only have we lost our money, but we feel like idiots.”

Many victims of investment scams feel this way. However, it’s important to remember that investment scammers are extremely professional in their approach. They have their sales pitch down to an art with a fancy website with fake reviews to lure people in. Their job is deceiving people and they are skilled at it.

How to protect yourself from investment scams

Some red flags to look out for

• A promise of high return and low risk.
• An investment company that makes unsolicited contact with you (often known as ‘cold calling’).
• Payments that are requested though Western Union or other payment methods such as Bitcoin, gift cards or card payments.
• Being asked to download an app that is not on the official Apple or Google Play app stores, or seems suspicious.
• A ‘romantic partner’ you are interacting with online starts to offer investment advice.

Follow these simple tips to protect yourself from investment scams

• Confirm that anyone providing you with advice has an Australian Financial Services (AFS) Licence or Australian Credit Licence from the Australian Securities and Investments Commission., opens in new window
• Scammers regularly forge certificates to make themselves look legitimate. Check the website directly and don’t rely on “certificates” sent by the person you’re engaging with.
• Contact the company directly through their official website, as scams often impersonate legitimate companies and employees.
• Make sure email addresses provided to you are the same as the registered companys. Slight differences, such as a ‘1’ instead of an ‘i’, can be hard to spot.
• Be very careful providing credentials such as driver licence or passport details as a part of an investment opportunity, as they may be used for identity theft.
• Scammers will often request remote access to help you set up a “trading platform”. This is a strong sign it’s likely to be a scam.
• Check for reported investment scams on the Australian Competition and Consumer Commission’s (ACCC) Scamwatch website, opens in new window.
• Be wary of any investment seminars or “free” advice that make big claims but provide minimal details.
• Never provide your NAB Internet Banking login details to a third party.
• Do your research before making any decisions and always allow yourself a cooling off period.
• Consider discussing the opportunity with a friend or family member for an objective opinion.

Remember that cryptocurrency is a new technology and it can be highly volatile.  If you send funds to an exchange or cryptocurrency account that you don’t have access to, you can only get your money back if the person you paid sends it back.

Who to contact for help

If you’re a NAB customer and believe you may have fallen victim to a scam, please visit nab.com.au/fraud and report immediately.