Every few years, research is published listing the typical investment scams and the unlucky targets of investment fraudsters. The most alarming trend is that investment fraud is becoming more serious and more organised, based on information published by the Australian Crime Intelligence Commission, and the main targets seem to be older Australians, based on the latest statistics released by the Australian Competition and Consumer Commission (ACCC), and published in its annual Targeting Scams report (for 2016 calendar year, published May 2017).
During 2016, the ACCC’s Scamwatch and the Australian Cybercrime Online Reporting Network (ACORN) received 200,000 reports about scams, and investment scams accounted for most losses reported to these organisations. Note that only a small percentage (7.5%) of scam reports to Scamwatch resulted in financial loss, although investment scam reports to ACORN, indicated that 38% of complainants suffered financial loss.
According to the Targeting Scams report, the financial loss figures are likely to be much higher because many victims don’t report the scams, or report it to organisations other than Scamwatch and ACORN. The report quotes a study conducted by the Australian Bureau of Statistics, which estimates that total financial loss to fraud (including credit card) fraud is $3 billion a year.
Australians aged 55 years and over account for 45% of all reports to Scamwatch.
Targeting older Australians is not a new trend. You may be surprised to discover that, in Australia, the targets of this type of crime are predominantly men who are aged over 50, who are highly educated and with high levels of financial literacy. The victims of this type of crime are also likely to manage their own super, said the then Minister for Justice, Jason Clare, upon release of an earlier 2012 report on the issue of investment fraud. The report, jointly produced by the Australian Crime Commission (ACC) and the Australian Institute of Criminology (AIC), is titled ‘Serious and Organised Investment Fraud in Australia’.
At the time, in 2012, the ACC warned that the level of superannuation savings in Australia make it an attractive target for organised crime groups. The criminal syndicates usually operate from outside Australia. The scammers use telephone, email and often high-pressure tactics. They use front companies and false names. When they have stolen a person’s money, the website disappears and so do the scammers.
Who is the typical victim of investment fraud in Australia?
According to the original ACC report, the most likely individuals to be victims are:
- Middle-aged to older persons (usually over 50 years old)
- Small business owners
- Self-funded retirees
- Individuals who have previously made investments in other companies and were considered ‘financially literate’
- Victims who are on shareholder registers
- Socially isolated individuals (can be geographically or otherwise)
- Educated, computer literate and have undertaken preventative research “that provides them with a sense of assurance”
The later ACC fact sheet, further states that the potential targets of these investment scams are:
- Australians nearing the end of their careers or in in retirement
- Individuals with accessible savings or the potential to draw upon equity in their current assets
- People with high financial awareness, who are well educated and have invested before
- Over-50 males, however all Australians should be aware of these scams and alert family members.
According to the ACC fact sheet, victims of serious investment fraud may be embarrassed and unwilling to report their loss, and this unwillingness can cause further problems in the victim’s personal life.
What are the risk factors for becoming a victim of fraud?
According to the original 2012 report, the fraudsters convince financially literate Australians to invest because they “technologically groom” the victim (potential investor), and engage in personal contact with the victim over weeks and sometimes months. The table below sets out some of the identified risk factors for fraud
Identified risk factors of fraud victims
|Previous victimisation||Belonging to organisations||Retiring, or turning 65|
|Signing up for “free offers” and “prizes”||Buying things over the phone||An engagement, marriage, birth, graduation or death in the family|
|Entering contests or sweepstakes||Making purchases on the Internet||Moving|
|Being on catalogue mailing lists or “junk mail” lists||Registering with any sites or groups on the Internet||Purchasing a house, car or major appliance|
|Having a major medical treatment or operation||Buying stocks or bonds, or making some other investment||Requesting information about an advertisement|
|Giving to a charity||Buying insurance|
Table source: Serious and Organised Investment Fraud in Australia report, 2012
Crime prevention: Steps to fight the scammers
The federal government offers you the following advice to prevent being ripped off by scammers:
- Report the scam to Scamwatch
- Visit MoneySmart website or call 1300 300 630 for further information or advice
- Alert your family and friends to the fraud (even if embarrassing), and to anyone who may have savings to invest
- Report suspected fraud to ASIC, on moneysmart.gov.au or 1300 300 630, or your local police.
- Hang up on unsolicited phone calls offering overseas investments.
- Check any company you are discussing investments with has a valid Australia Financial Services Licence (AFSL) – you can check at moneysmart.gov.au
- Always seek independent advice before making an investment.
Watch out for legitimate investments: Wolves dressed in sheep’s clothing
I congratulate the federal government on highlighting this serious and growing trend but I do take exception to some of the superannuation industry quoting the Trio capital fraud in the same breath as the investment scammers. Trio Capital (see older SuperGuide article Super fund fraud victims to be compensated for background information) was a so-called legitimate investment sold by financial advisers, and regulators APRA and ASIC took a long time to discover that the money was disappearing through fraudulent means. As a consumer, there was nothing you could have done to spot the fraud since the company had all of the required licences and the financial advisers involved had all of the required licences.
Now, whether the investment product offered by Trio was appropriate for an individual is something an individual can control. Identifying scammers is important, but grappling with the merits of dodgy or high-risk (but legal) investments is really the bigger issue for independently-minded investors. For more information on how to spot dodgy financial advice, see SuperGuide article, Six dangers when getting financial advice.