Investment and financial fraud is on the rise across the world. Each day thousands of people are conned out of their hard-earned money by scams that have increasingly become sophisticated.
Ramesh Ramdeen, Head of Fraud at FNB Wealth and Investments and Ashburton Investments says that, “There are dozens of ways scammers use to gain access to people’s accounts, often masquerading as being from financial institutions. Investors need to be vigilant. If something feels or looks strange, stop what you are doing and get in touch with your financial service provider directly or your financial advisor. Never feel pressured to do something right away.”
He unpacks some of the most prevalent investment scams in South Africa:
High-yield investments: The higher the yield, the higher the risk, is a well know investment saying. This type of fraud typically includes an unlicensed individual convincing an investor that an unregistered investment can produce a high yield with little to no risk. If you are approached online to invest in one of these, you should exercise extreme caution - it is likely a fraud. If it sounds too good to be true, it probably is.
Closely related, many fraudsters pretend to be working for an asset manager and even use fake copycat websites with names of real staff members of legitimate companies. Always verify from different sources before parting with your money.
Advance fee: Fraudsters can also ask for an upfront payment to grant access to a supposedly great deal. They will use words like regulatory fee, tax, finder’s fee, commission or incidental expense to describe the fraudulent advance that they are asking for.
Fraudsters may even go as far as posing as professionals in the financial services industry, like a broker, so investors can feel more comfortable with them. Investors should be aware that fraudsters could even use official-sounding e-mail addresses. To avoid this scheme, investors should research advisers.
Pyramid schemes: Many South Africans have encountered a pyramid scheme through a family member, colleague or friend. Though a pyramid scheme may sound similar to a multi-level marketing program where earnings are based on the amount of sales, a pyramid scheme is an illegal practice.
“Participants in this scheme can only make money by recruiting new participants and they also have to buy a large inventory of a product or products. Be skeptical of stories where the recruiter came out of poverty and acquired wealth through an investment programme,” says Ramdeen
Internet and social media fraud: Fraudsters use social media to appear legitimate through newsletters and blog posts. They also use it to collect sensitive information about you and spam you with unsolicited offerings.
This is a critical piece of awareness for investors. Just because someone has a social media presence, it doesn’t mean they are a legitimate business. Social media is an increasingly fertile ground for scammers.
Phishing: People are lured into clicking on links in emails or messaging apps that introduce malware on their devices, allowing fraudsters to gain insights to their confidential information such as banking and investments information.
They then use this information to communicate with financial institutions to initiate withdrawals from investments and bank accounts. These phishing emails normally originate from “trusted sources” tricking the recipient to believe it is fine to click on links provided. The best way to protect yourself is to ‘think before you click’, use antivirus software, check the full message name, double check the email from the sender, verify certain details on the mail and keep operating systems on your phone and computer up to date.
Identity theft: Identity theft is a major risk to people as our lives are increasingly online, especially during the lockdown. Identity numbers are stolen and used for the purpose of committing fraud, such as taking out loans, taking over accounts at financial institutions and withdrawing the funds. To best protect against identity theft, keep passports, ID cards, driving licenses, utility bills and bank statements in a safe place - or shred old statements you no longer need.
“We urge all investors to stay vigilant at all times. If you are unsure, your financial advisor or the investment institution have fraud hotlines that you can contact to verify information or report fraud,” concludes Ramdeen.
Ramesh Ramdeen, Head of Fraud at FNB Wealth and Investments