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Types of financial fraud: investment schemes

Sasha Karen
09 November 2016 3 minute readShare
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You may be presented with an opportunity that's too good to be true, to invest in a business and grow funds for your own. Here's how to tell whether it's legit or a nasty hoax.

Investment scheme scams can be the most costly type of financial fraud to be stung by, according to the Australian Competition and Consumer Commission (ACCC) Scamwatch website.

Statistics provided by Scamwatch state that investment schemes were the most common type of financial fraud reported to the ACCC in the calendar year 2015. They comprised 25 per cent of all reports, with a total loss of approximately $23 million across 1,263 reports.

These schemes can be broken down into four main types:

Investment cold calls

Various percentages are overlayed on top of Business owners may receive information from an overseas stockbroker or portfolio manager that offers low-risk, high-return investment advice or recommends overseas companies to invest in.

They may also state that they don’t need an Australian financial services licence (AFSL), despite the fact that having an AFSL is a requirement to provide financial services in Australia.

According to Scamwatch, typical investment opportunities mentioned in investment cold calls include “share, mortgage or real estate high-return schemes, options trading or foreign currency trading”.

Share promotions and hot tips

Business owners may receive an email, or see a message posted on a forum, indicating that the shares in a business will increase soon, with emphasis on the urgency of buying the shares as soon as possible.

According to Scamwatch, this is a tactic to artificially inflate the price of the shares so the scammer can sell them at a high price, leaving all other shares purchased by victims to deflate.

“If you invest you will be left with large losses or shares that are virtually worthless,” the Scamwatch website says.

Investment seminars

Advertising may be sent to business owners promoting individuals with motivational and/or financial experience, promising advice on investment, which may involve high-risk strategies.

Seminar promoters use high-pressure sales tactics, often with additional fees or commissions not specified at the time of booking, including charging an entry fee or selling expensive reports or books.

“If you invest there is a high chance you will lose money,” the Scamwatch website says.

Superannuation scams

Business owners may be contacted by a supposed financial adviser, informing them of a way to access their super fund, typically through a self-managed super fund, for a price.

Normally, super funds can be accessed early legally through a variety of means. According to the Australian Tax Office, these means are:

Access on compassionate grounds

A golden egg in a golden nestSuper can be accessed on compassionate grounds, such as to pay for a medical treatment for you or someone close to you, a payment on a loan to prevent the loss of your house, the modification of a home or vehicle due to a severe disability, or to pay for expenses related to a death, funeral or burial. This is taxed normally.

Access due to severe financial hardship

If you have been living on government support for a continuous 26 weeks and cannot meet reasonable living expenses, a taxed amount ranging from $1,000 to $10,000 can be paid out, and can only be done so once per 12 months.

Access due to terminal medical condition

When two medial practitioners confirm that you have at most 24 months left to live, with one of the two practitioners being a specialist in an area related to the terminal medical condition, your entire super can be paid out tax-free.

Access due to temporary incapacity

If you cannot work temporarily, or have to work fewer hours due to a physical or mental medical condition, you can receive your super in regular payments during the period you cannot work, and it will be taxed normally.

Access due to permanent incapacity

If you cannot work ever again due to a physical or mental medical condition, as confirmed by at least two medical practitioners, in a form of work in which your fund believes you have had a sufficient level of education, experience or training, you can receive your super as either a lump sum or regular payments, with different tax rules applying to the amount in your super.

Super less than $200

If your super is less than $200 and you change employers, you can receive the super tax-free.

Trying to access your super outside of these exemptions is illegal, with punishments ranging from paying interest and penalties on illegally accessed super to having the super included in your taxable income even if it’s returned. For self-managed super funds, you can also be fined up to $340,000 and be jailed for up to five years.

Ways to identify that you are being targeted for an investment scheme scam include:

  • You receive a call or calls about investment, which last a long time and involve being transferred to a senior employee;
  • You receive an email from someone you don’t know about a share tip that is either generic or appears to be sent by mistake;
  • An advertisement for a seminar mentions making easy money fast;
  • An invitation is sent to you for a free seminar, and consecutive seminars have high fees, which may be covered by a loan from the ‘promoter’; and
  • An advertisement makes claims about accessing your super early.

Read about other kinds of financial fraud affecting SMEs:

Fake recipient scams
Reclaim scams

Types of financial fraud: investment schemes
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Sasha Karen

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