In challenging economic times such as we find ourselves in as a result of rising costs of living, load shedding, high unemployment, and escalating interest rates, it’s inevitable that an increasing number of South Africans are becoming financially desperate and, as a result, more susceptible to investment scams. Desperate to get out of debt and escape their current financial dilemmas, the idea of making large amounts of money in a short period of time is difficult for many to resist.
Despite constant warnings by the media, financial institutions and regulatory bodies, we often find it incredulous that the unsuspecting fall victim to such scams – and yet the reality is that it can happen to anyone. As technology advances, so too do the techniques used by fraudsters to trap their victims and, as such, keeping abreast of the various types of frauds and scams is essential.
The internet, social media platforms and instant messaging apps make it easy for con artists to appear credible and reach a wider audience through nefarious means. With a broad array of scam types, identifying them for what they are is often not as easy as one would think – and sophisticated fraudsters can go to great lengths to make the scam look legitimate even to the trained eye.
While pyramid and Ponzi schemes are, generally speaking, more easily identifiable, there is a never-ending stream of new scams to be on the lookout for, including fraud involving identify theft, phishing, spoof emailing, company cloning, and pension fund scams. What’s worse is that when engaging with these scams online or through instant messaging apps, artificial intelligence feeds our emotional biases by pushing information into our midst that makes the scam appear credible. Therefore, we all need to be hypervigilant when it comes to identifying scams and to rather err on the side of scepticism when considering any potential investment opportunity.
Here are some factors to look out for:
- Any emails or instant messages asking for personal information such as ID, bank account details, passwords, usernames or login credentials should be deleted. You should not be asked to validate any personal details via phone, text or email.
- Any emails or instant messages containing links or strange attachments should be treated with the utmost suspicion. Before clicking on a link, hover your cursor over it and check the URL. In short, think before you click.
- If you receive an email from a familiar person, check that the email matches the person’s name. For instance, if the email is from ‘Tony White’, check that the person’s name appears in the actual address and not some fictitious name or sequence of digits.
- If you’re dealing with a reputable, registered investment company, their name should appear in the domain of their email. If the investment company uses a public domain such as Gmail or Hotmail, alarm bells should ring.
- When receiving an email, check the spelling carefully. Often an email appears to come from a well-known company but if you look closely at the email address there is one digit that has been subtly changed.
- Look at the greeting in the email. Scamsters often use greetings such as Dear Sir/Madam or Dear Valued Customer.
- Be on the lookout for badly worded emails with spelling and/or grammatical errors.
- Be cautious of any investment opportunity that requires you to pay an entry or initiation fee. You should not be required to pay to invest. In particular, if you are asked to make the deposit into an individual’s personal bank account, steer clear.
- Investment markets are volatile by nature. Be circumspect of any investment that offers guaranteed or consistent returns as this is contrary to the nature of investing.
- Any promise of double-digit investment returns over a short period of time should set the alarm bells ringing. Investing is a long-term game and there are no shortcuts.
- Be careful of marketing material that includes words and phrases such as special offer, once-off bargain, limited period only, or once-in-a-lifetime opportunity.
- If you are being rushed into making an investment decision, rather walk away. You should not feel any pressure or urgency when making a decision.
- Stay clear of any investment opportunity that is only available to an elite or closed group of investors. Any secrecy or lack of specifics should be regarded as highly suspicious.
- Steer away from investment opportunities that offer free giveaways.
- If you are required to recruit new members to join the investment scheme, be very cautious. This is a hallmark of pyramid schemes which are in fact illegal. Remember, in order for pyramid schemes to survive, new investors have to join the scheme in order for the older investors to receive their ‘returns’.
- Ponzi schemes are a little bit more difficult to identify because they do not require you to recruit new investors to the scheme. However, these schemes generally collapse when too many investors try and withdraw their money at the same time.
- Beware of pushy salespeople driving flashy cars and wearing designer clothes. Many fraudsters set up social media to flaunt their extravagant lifestyles to would-be investors. Remember, photos of mansions, designer clothes and overseas locations do not make an investment scheme legitimate.
- Be sure to ask questions relating to the structure of the investment and its underlying assets. The company should be able to produce a prospectus or fund fact sheet which clearly explains how returns are generated. Any overly complicated investment structure should be avoided altogether.
- Remember, the rule when it comes to investing is ‘the higher the risk, the higher the reward’. As such, beware of low-risk investment opportunities that promise high rewards as this is unconventional.
- Be cautious of an investment scheme where the scheme members all collect commission on a single transaction because this is how pyramid schemes operate.
- You cannot win a lottery when you haven’t purchased a ticket, so delete any emails announcing you as a lottery winner. Similarly, it is highly unlikely that you are the beneficiary of a large, unclaimed inheritance, so rather delete the email.
When critically assessing whether or not an investment opportunity may be a scam, keep in mind that fraudsters know they must gain your trust in order to entrap you, so expect to find credible-looking credentials and details of their website. Remember, websites can be built free of charge, in very little time, and with very little know-how, so don’t be impressed by their mere existence.
With current levels of sophistication, you really need to hone your sleuthing skills and dig deep when it comes to conducting due diligence and research. We all believe it can never happen to us, until it does, so be alert and vigilant.