Scammers cheat people out of their money. Scammers target financial institutions and persons to promote their scam. Many scammers remain anonymous and out of the reach of regulatory and enforcement authorities. Consumer education is, therefore, a very important way to minimise the impact of this threat. Compliance Alert regularly publishes Alerts on its website and blog about the most recent scams affecting the consumer and investors.
Cold calling is a sales contact (phone, email or fax) which has not been asked for. The practice of cold calling itself is not a scam, but it is a common way in which scammers make initial contact with intended victims.
Cold calling about financial products or services by unlicensed firms claiming to be from the DIFC is illegal. You should check the Public Register of the DFSA website for a list of all persons and Firms licensed to provide financial services in or from the DIFC.
It is common for cold calling scams to be operated by overseas companies. Cold calling investment scams operate internationally so local agencies such as the DFSA do not have the jurisdiction, and therefore the authority, to investigate and close down their operations.
Buying financial products or services from overseas cold callers is high risk. If you receive a call from an overseas broker selling shares or financial products you can protect yourself by enquiring with the relevant overseas regulator as to the authenticity of the caller. Simply performing an internet search may not be sufficient protection for you as many scammers have developed sophisticated websites to conceal their true purpose.
Fake bank emails/phishing
This scam takes a number of forms. The most common is an unsolicited email which claims to be from a bank, credit card company or some other service which you may use. It asks for account details, and sometimes a PIN, either by return email or through a website.
The email often states that these details are being requested for 'security and maintenance upgrades', the 'investigation of irregularities', ‘surveys’ or 'bills' or 'charges due'.
These emails can look genuine by using:
The names of real people
The right logos and branding
Links to pages from the real website
Official-looking fine print
A site that mimics the real thing. Technically, it is easy to copy and paste genuine pages to a new fake address
Fraudsters scan the internet for email addresses or generate them at random. They may send thousands of such emails. Even if only a few unsuspecting people respond, it is a good result for the scammers.
Banks and financial services companies will never ask for your personal financial particulars over the internet, and therefore you should never provide these details over the internet.
If you have a concern you should always contact your bank.
One of the simplest, yet most effective, scams perpetrated on unsuspecting investors for many years is the Ponzi scheme. A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profits earned.
In these schemes:
The promoter promises investors a very high return on their investment and says it is secure
Part of the money deposited by newer investors is used to pay dividends or interest payments i.e. new investor money is used to pay the older investors
The scammer continues paying dividends for a couple of months until investors are more comfortable with the investments, and decide to invest more
The investors also begin to urge their friends and relatives to invest as well
There is, therefore, a steady flow of funds into the scheme, and the number of investors grows
The scam collapses because the number of new investors entering the scheme is not enough to sustain the payment of dividends to all investors, and/or the scammer spends the money generated by the scheme too quickly
If the scammer is disciplined about how much money is left in the account to pay "dividends", the scam can go on for many years. Theoretically, if the scheme continues to draw in enough new investors, it could go on indefinitely.
A Lottery scam involves an unexpected email advising that a prize has been won in an international lottery. The Lottery described is usually based overseas and one that the recipient of the email never entered. The scammed victim is usually excited about the windfall and keen to claim the money.
The victim responds to the email, and the scammers reply in a polite, professional and helpful manner. The scammers will invariably request a 'fee' that is required in order to process the winnings. That is the fraud. Nothing has been won at all, but winnings are dangled in front of the victim while the scammers try to get as much money as they can in fees and charges.
Boiler room operations are share scams. The operator will sell worthless or low value shares at inflated prices to investors. To make matters worse these shares are usually impossible to sell once purchased.
The ruse is simple. A broker, usually operating from an overseas firm, will cold call an investor and propose they buy shares in a particular company. The company’s shares may have also been promoted on online message boards and forums as part of the scam.
The scammers use a number of alternative ruses. The company:
Will probably be listed on an illiquid market, so the shares cannot be freely sold, and the price being charged by the scammers will be hugely inflated; or could be a small, unquoted company that the broker claims is planning to list; or
Will not exist at all, and the broker is simply selling shares in nothing before taking the money and running.
The firms will operate from boiler room 'hotspots', such as Spain, Switzerland, Japan, Bermuda or the US, so they are outside of the remit of the DFSA. They may have a UK-listed address and a grand sounding name to give them an air of legitimacy.
These scams are called 'boiler room' scams because of the highly pressurised sales technique employed by the broker. The broker can be forceful, persistent and highly aggressive.
A common tactic is to create a sense of urgency about a stock, such as telling the investor it will rise in value any day so they need to invest quickly.
It is not only novice investors that get duped. Often experienced and sophisticated investors also fall victim to these scams. In the majority of cases, the shares being sold are worthless and the boiler room vanishes, leaving the investor out of pocket.
There is a lot of information about boiler room scams on the internet. To protect yourself from these scams you should contact your local financial services regulator if you think you are being asked to invest in shares or other financial products by a boiler room.
Advance fee frauds
An advance fee fraud may take many factual forms but in essence it involves people being persuaded to advance sums of money in the hope of realising a significantly larger gain. The gain is, of course, never realised. One example is being contacted by someone asking for help in transferring money out of the country. This type of scam has targeted many people around the world. It is also sometimes called the 'Nigerian letter scam' as many of the scams originate from Nigeria.
The scam varies, but usually the victim will receive a letter, or more often, a fax or email offering a business 'proposal' or transaction. The persons writing may claim they are a government official, the widow of a government official, or from a charity or business group. In all cases, they promise a benefit or reward in return for help in offloading some cash or other commodity.
To ensure a 'hitch free transfer' of the benefit or reward, the scammers will often ask for bank account details. The scammers will then ask for payment of all sorts of 'advance fees' (e.g. customs, taxes, bribes) to facilitate the transfer. These fees are the real purpose of the scam, and may add up to tens of thousands of dollars. It is estimated that over US$5 billion from victims has been lost to scammers.
Sometimes the scammers use the names of reputable organisations to create the illusion that they are legitimate. An example is an email purporting to be from the DFSA, or from the past and present Governors of the DIFC. These emails offer to give investors alleged access to 'frozen/seized' funds. These types of emails or letters are the same as the advance fee fraud, just in a different form.
Letters have also been sent to people advertising homes for sale on the internet, pretending to be from interested purchasers. The letter goes on to ask for help in transferring money from the purchaser.
It is best NOT TO respond to any such email, fax or letter. There is a lot of information on the internet about advance fee frauds and you are encouraged to familiarise yourself with the various scams that are being perpetrated world wide.
How to Avoid being Scammed
You can avoid being scammed by:
Checking the relevant regulatory agency’s website to see if the company you are dealing with is listed and regulated. You can even contact the regulator to verify whether the company is regulated
Doing general searches (e.g. on Google) to see what information can be found about the company you are dealing with
Only dealing with people you trust. Dealing with individuals you have never met carries a higher risk
Getting independent advice before entering into a transaction, or getting a second opinion from a trusted friend
Using common sense.
Be wary of the tell-tale signs of a scam such as persons who:
Communicate only via email and telephone with a reluctance or a refusal to meet in person;
Are reluctant or refuse to provide information on who regulates their activity; and/or
Use generic email address such as Hotmail and Yahoo; and
Keeping paperwork safe. When entering into any new relationship ensure that you maintain good records of all paperwork you receive and keep records of all your meetings and conversations. This may not prevent you from being scammed but will assist in the event that you need to take any action.
If you receive an offer of an amazing deal out of the blue, don’t believe it! If it seems too good to be true then it is probably a scam
If you receive an opportunity to invest in a financial product which
offers bigger and faster profits than real investments
offers less risk and less effort than real investments
offers something special that genuine investments don’t offer; and urges you to act more urgently than the real thing