Keeping You

Money: Can you spot a scam?

07 Feb 2019

If it sounds too good to be true, it probably is.

By guest contributor, Jared Campbell


“Earth provides enough to satisfy every man’s needs, but not every man’s greed,” said Mahatma Gandhi.

In the weekend I came across a news item that David Ross, the man behind one of New Zealand’s worst Ponzi schemes, will come up for parole next month.  Mr Ross, the head of Ross Asset Management, was jailed for 10 years and 10 months in November 2013 after conning $115 million out of 700 clients.

Firstly though, some jargon busting. A ‘Ponzi’ scheme pays out returns for older investors by acquiring new investors.   The first notorious Ponzi scheme was orchestrated by a man named Charles Ponzi in 1919 in the United States who used postage stamps as his medium for inflating returns.  At one stage, Mr Ponzi, was offering 50% returns in 45 days or 100% in 90 days. 

If it sounds too good to be true, it probably is.  I’m sure we’d all be suspicious if an investment manager proposed returns in the realm of 50% in 45 days.  When Ross Asset Management tricked investors, their promised returns and ‘actual’ returns were much less, but still abnormal.  Ross was promising investors a consistent return of 10% a year. Not too high to arouse suspicion, but with an unrealistic promise of consistency. One can’t avoid the odd year with a negative return and this should have pricked the ears of at least the experienced investor.

Almost 100 years had passed between Mr Ponzi and Mr Ross but scammers are clever and we humans have an appetite for excessive investment returns for the risk taken ... it’s called ‘greed’.

Here are 9 warnings signs outlined by Mary Holm in her book, "Rich enough? A laid-back guide for every Kiwi". We’ve added a two more:

  1. The return is expected to be higher than, say, 10% per year.      
  2. If they say the investment is also low-risk, be extra wary.  For example, Bernie Madoff – the American who confessed in 2009 to running the largest financial fraud in US history – said he was giving investors a return of about 1% a month, with no losses for 20 years (low risk).  You can’t get that high a return without ups and downs.
  3. Very high past returns
  4. Pressure to commit quickly.  There should never be a rush to invest.  Take your time.  Sleep on it for a month or even a year while you undertake your due diligence.
  5. A stranger approaches you by phone, email, social media, mail, wherever – with an irresistible offer of something “below value”.
  6. Free Advice – nothing is free in business.  Be prepared to pay for your advice or be prepared to be mesmerised by a slick sales person.
  7. Confusing magic boxes for trading options or futures – here an App or software program promises the ability to deliver high returns with low risk.  Trust me, if the inventor of an App could pick share winners ahead of time, they wouldn’t be selling their crystal ball to anyone!  They’d be sitting back and making billions themselves.
  8. Decline any request for your bank or credit card username, password or PIN number. Banks never ask for that sort of stuff.
  9. You’ve won a prize, but you don’t remember entering a draw.  I recently had a client willing to part with some money to redeem a prize they won when a scratchy ticket arrived in the post.  They’d won the scratchy prize, but they just had to deposit a few thousand dollars to legitimate the bank account before the larger prize money would be deposited into their account.
  10. Shhhhhh. It’s a secret – not everyone gets the chance to share in a Nigerian official’s millions.  We all joke about the Nigerian millions, but any investment that involves secrecy, should raise a red flag.
  11. If you get a great sounding email from an official looking site, like your bank or Microsoft, and you can’t resist the urge to click on it and check out the great promise on offer, hover your mouse over the email address from whence it came and examine the address very carefully. You are looking for some small irregularity in the address, such as a missing letter, or a strange country in the address that isn’t a good old ‘nz’.

The New Zealand government (Ministry of Business, Innovation and Employment) runs ‘Report a scam’ under their Consumer Protection site, see here. According to this website around $13 million was scammed from New Zealanders in 2015 and this is probably the tip of the iceberg. Scroll down on this page and have a look at ‘recent scams’.

As in most things in life – if it sounds too good to be true, it definitely is.  If in doubt ask your advisers for help, if still in doubt, decline.

Jared Campbell

Campbell Jared2

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