> Scam alert  > Types of scams

Types of scams

There are some amazing offers that may come your way. You may be approached by someone pretending to be an investment adviser. But always investigate any money-making scheme very carefully before deciding whether or not to invest your hard earned money. If you have any concerns about a scheme seek legal advice and if you are still unsure have nothing to do with it. If it looks too good to be true it usually is!

Chain letters

Some chain letters promise easy money to anyone who participates, but for the majority there is a very small or no return at all. The chain letter invites you to send a sum of money to the name at the top of a list, delete that name and then add your own name to the bottom of the list before sending the letter to a number of people.

Chain letters that involve sending money in the hope of making money are pyramid selling schemes, and these are illegal in Australia.

Investment scams

Former stockbroker, David Tweed, has been permanently banned by ASIC from providing financial services. He has been described as unfit to provide financial services as a result of engaging in misleading and deceptive conduct concerning the making of offers to purchase shares. Action has been taken against Tweed in the Federal Court of Australia, but it is important for investors to understand that this does not prohibit him from making unsolicited offers to investors. If you get an offer, unsolicited, from a company offering to buy shares on your behalf -- beware.

Read more about David Tweed's activities on the ASIC website.

Pyramid schemes
Pyramid schemes make money by recruiting businesses or people rather than by selling real and legitimate products or services – even if a product or service is involved.

In a pyramid scheme, participants are often asked to make a payment, known as a ‘participation payment', to join and are promised payments for recruiting other investors or new participants.

The two payments often associated with a pyramid scheme are:

• a participation payment to join
• a recruitment payment, promised when a member recruits others.

These recruitment payments often help define a pyramid scheme – it may be the only or main reason for new member to join. The ‘payment' involved could equally be a financial or a nonfinancial benefit, given either to the new participant or to someone else.

These schemes inevitably collapse and new members can lose a lot of money. It is illegal for any business or person to participate in, or persuade others to participate in a pyramid scheme.

A court can consider several factors when identifying a pyramid scheme. The Australian Consumer Law does not limit the matters a court can consider however the following characteristics can be used to help identify a pyramid scheme:

• unrealistic claims in regard to future profits;
• the sales and/or promotional material push recruitment very hard;
• recruitment payments are a substantial reason to join.



Phishing

Phishing scams (via the computer) have one thing in common - they trick people into disclosing their personal details by enticing them to click on a link that directs them to a hoax website where personal information is captured. Often the emails and the fake websites are designed to replicate the appearance of a bank or company's legitimate website, and the website address can also be very similar.

Financial institutions do not contact their customers in this way, so don't be trapped by this scam. If you click on a dubious link you may be opening up your computer system to a 'Trojan' virus, which can go on to access your personal details or financial accounts.

Resources

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