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6 ways to spot a financial scam

6 December 2012

Hi all, it’s been several months since my last blog update on Thai Mutual Funds part 2.  With the run up to the festive holidays and no doubt the majority of us going into overspend on gifts and travelling, I wanted to share with you 6 ways to spot a financial scam. Individuals can take preventative measures to ensure their hard earned cash doesn’t disappear!

Ready? Lets go:

1.  You receive an email from an unknown source.

Everyone knows about the Nigerian Email Scam right? What? You don’t know, I hear you say??  Ok basically,  the sender requests help in facilitating the transfer of a substantial sum of money, generally in an email. In return, the sender offers a commission, usually in the range of several million dollars. The scammers then request that money be sent to pay for some of the costs associated with the transfer. If money is sent to the scammers, they will either disappear immediately or try to get more money with claims of continued problems with the transfer.  Why’s it called the Nigerian Email Scam?  because of its prevalence in the region, particularly during the 1990s of course!  So if you receive an email from someone you don’t know, asking for money in return for a nice return – delete it.  If a bank or business contacts you don’t open any attachments or click on any link as it maybe a virus.  Visit their websites to see if there’s anything that requires your attention.

2.  Callers asking for personal information.

If someone calls saying they are from ABC Bank, it must be true, right? Don’t assume the person calling is being truthful, particularly if this person is asking you for information like account numbers or passwords. Politely end the conversation, and call your bank. When in doubt, go to the source.

3.  Boiler Room Scam

In a typical investment-related boiler room the “brokers” may sit crowded together in a room with long tables with up to seven phone stations per table. The firm likely holds mandatory sales meetings every morning at which time sales techniques are demonstrated and “scripts” for the firm’s “house stock” are distributed. Brokers are expected to follow the script and only give customers the information it contains. They are discouraged from doing any outside research, and are told to rely on the firm’s research and representations.

4.  The Pyramid Scheme

This is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, given to the earlier investors/recruits above them.

5.  No Value, No Product.

Work from home, make thousands a week!   It sounds so good, you’re thinking of calling after another bad day at work, right? These promises are hollow, and the scams often have you recruit more people to post ads, and so on – see the above.  If an advertisement is vague about the work, and sounds like they’re selling you something, it’s probably a scam.

6.  No license.

There’s this smooth salesperson, maybe it’s even someone you know personally, who is trying to sell you insurance or investments. It sounds really good. They promise high returns, low risk. But is this salesperson and the company they are attributed to licensed? Ask – some of the biggest scams right now involve sales of unlicensed securities by unlicensed sales people and companies. If there’s no license, avoid the deal.

So to conclude with some easy due diligence checks:

1.  Check if the company is licensed to operate in the industry and the country they are in.  For instance here in Thailand you can verify this on the SEC website.  Check out number 38!

2.  Is the advisor licensed?  Again you can check with the local regulator online.  For Thailand you can search via the last name or the advisors 6 digit license number – Investment Advisor Approval.   Also look at the individuals experience and qualifications, does it match against their job?

3.  Visit the companies website – how many years have they been operating? Do they have a credible reputation?  You can verify this by visiting local online forums.

4.  Visit the companies offices – does it look like a boiler room? – Need I say more?

5.  Check and verify the information presented to you.  The source should be clearly illustrated and originate from a reputable organisation?  Does the funds or individuals have a solid track record?

And remember, if its too good to be true, it usually is!

Source:  Federal Bureau of Investigation

Simon Osborne
Vice President
simonosborne@broadgatefinancial.com