What to do when friends rip you off

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THE average Australian is now more wary, and better educated, about potential investment scams than ever before.

We’re wary of email phishing scams which try and obtain your banking details. We’re wary of identity theft and telephone rorts selling dodgy overseas investments.

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But investment scammers seem to now be targeting groups of friends and social clubs to build trust with unsuspecting victims.

We’ve received a spate of email recently from readers double checking investment opportunities which so-called “friends” or social associates have offered them. In virtually every instance we’ve recommended they get it checked with an independent adviser because to us the opportunity looked suspicious.

They seem to be a more sophisticated version of the hot share tip from a relative or friend.

Criminals are using personal relationships and trust to penetrate our defences.

It’s called “Affinity Fraud” and authorities say it’s one of the hardest types of fraud to police. In a nutshell, financial scammers recruit leaders in social club circles or religious groups to promote investment schemes.


media_cameraBeware friends that come bearing investment ‘gifts’. Artwork by Terry Pontikos.

Even though these schemes offer impossible rates of return people get sucked in because they’re recommended by people they know and trust. Sometimes even the people within the group doing the promoting don’t know it’s a dud until it’s too late.

They are generally invested themselves, believe the investment is performing well and want to help others get on their “good thing”.

With interest rates so low and wage growth non-existent, Australians are desperate for anything producing an above average return and are becoming easy targets.

It’s really not all that surprising, given the way criminals describe the schemes. Most of them use professional sounding names like ‘High Yield Trading Programs’, ‘High Performance Property Syndicate’ or ‘Private Equity Programs’, and they’re usually connected to a financial institution overseas. What’s more, they usually promise the safety of overseas bank guarantees issued by the world’s ‘top banks’, but fail to disclose who they’re referring to.

These investment programs will talk about how, for example, house prices have crashed overseas and are available at bargain basement prices compared with the unaffordable values in Australia. While, on the surface, the idea and the rationale appears logical it hides the fact the scam doesn’t deliver on its promises and is often simply a front for large scale fraud.

Watch out when there’s an overuse of words like high returns, tax-free benefits, no risk, low risk, guaranteed of inside information. Alarm bells should start to ring with any these.

The Australian Securities and Investments Commission has some recommendations for those who are approached with such offers.

For starters, they recommend checking out every little detail of the scheme no matter how much you trust the person recommending it to you.

Secondly, don’t get sucked in by investments that seem too good to be true, that promise spectacular profits or guaranteed high returns. You know the saying, if it seems too good to be true, then it probably is!

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Thirdly, approach any investment opportunity with scepticism, especially if it’s not fully outlined to you in black and white. Any legitimate investment will always be put to investors in a document of some description, so don’t trust someone who says that they don’t have the time to put the deal in writing for you, or they don’t have the time to outline the ins and outs of the offer on paper.

Likewise, a glossy brochure or website is not evidence the investment product is good or even real.

Finally, don’t feel pressured or rushed into making your investment decision. This is one of the obvious signs of an affinity scheme, as promoters like you to sign up before you get the chance to question or investigate the offer. That’s why it’s always best to question and research any ‘once-in-a-lifetime’ investment opportunities.

It’s just another example of why it’s always a good reason not to take advice from anyone who’s not a licensed Australian Financial Services practitioner. If you do get offered a great deal, have your adviser look it over before you even consider investing.

If on further investigation, you realise that you’re being “had” report it to ASIC www.asic.gov.au to make sure no-one else is hoodwinked in the future.

Originally published as What to do when friends rip you off



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