It often starts with an ad, an email, a phone call, a leaflet in your mailbox or a comment from a friend or acquaintance. Before you know it, you're considering transferring your savings, increasing your mortgage or borrowing from the promoters - whatever it takes to raise money to:
*
Invest in something that offers high returns but with little risk, or
* Buy a computer program, CD or video or take a course that will give you the skills to earn - there it goes again! - high returns but with little risk.
Often, you must act fast. There are only a few places left or it's cheaper if you enrol now or the market is about to turn against you. Mayday! Mayday! Mayday! You are almost certainly about to be ripped off.
Occasionally we hear of a genuine person - as opposed to the promoter's sister-in-law - who does well out of such activity. They were probably just lucky.
As a wise man once said, if you put enough monkeys on typewriters, one of them will eventually type Hamlet. But most monkeys type rubbish. And most investors in these schemes lose money.
In some situations, even the winners succeed only because it's a pyramid scheme. The early "investors" receive money put in by the later investors, who end up with nothing.
Some scams are obvious to all but the gullible. Others entice even the sophisticated, who may be too embarrassed to do anything about it.
Australian Securities and Investments Commission chairman David Knott, discussing 80 overseas telemarketing scams, said 90 per cent of the victims were men. This suggested, he added, that women were less active in financial markets and more cautious.
Not long ago, a retired judge admitted being ripped off in several property schemes.
Eleven warning signs
1. The expected return is higher than, say, 12 per cent a year. Such investments must be highly risky. Also be wary of any investments predicting returns of more than the bank deposit rate that don't warn you that you should be in for the long term.
2. Very high past returns. Promoters sometimes simply lie about past returns. Or they select an abnormally prosperous period and present that as typical, or select the few past investments that did extremely well and present them as typical.
3. Pressure to commit quickly. Promoters don't want you to have second thoughts or ask others' advice. Sound investments will be as good next month as they are today.
4. An approach by phone. I have never heard of a sound investment being offered in a phone call from a stranger. As the Securities Commission says, hang up on cold callers.
5. Free seminars or courses. The promoters must be planning to sell you something. Why else would they bother? Note, too, that "education" programmes that charge fees can be just as bad. Be wary of any programme not run by a legitimate educational institution.
6. Promoters that offer properties or shares that are "below value". Who are all the sellers that provide these bargains? And why don't the promoters simply re-sell at a profit, rather than involving you? Often, in fact, the properties or shares are over-valued.
7. A strategy you don't fully understand. Of course, many legitimate investments are complex. But you shouldn't invest anyway if you can't see how returns are generated, tax deductions are justified and so on. And some scamsters deliberately make their product confusing, in the hope you will concentrate on expected returns and not question how they are generated.
8. Requests for info such as PIN numbers, passwords, user names or credit card details, even if they seem to be from your bank or similar. Banks never ask for this information.
9. Notification that you've won a prize, but you didn't enter the competition. You'll be asked to send cash for processing. That's the last you'll see of it.
10. A request to keep an investment opportunity private or secret. What is there to hide?
11. Claims that you'll "learn the trading techniques many don't want you to know". Or you'll be let in on: the secrets of the rich; a portion of a Nigerian official's millions; or high-return investments with "the world's prime banks" or "top world banks". How did you get so lucky?
Nine false friends
People sometimes take comfort from features of an investment when they shouldn't. Some to watch out for:
1. Advertisements in reputable publications or electronic media. The media don't routinely check the credentials of advertisers.
2. Wording such as: "It's completely legal", which is sometimes simply a lie; or "mortgage", which doesn't necessarily mean an investment is safe and low-risk; or "Approved by (a Government agency or the Consumers' Institute)". These do not give endorsements.
3. A money-back guarantee. That's no use if, when you go to claim, the company no longer exists, or it says you are past an expiry date you were never told about, or you didn't follow all instructions to the letter.
4. A recommendation that you check with your own lawyer or accountant. Some people assume that means the investment is legitimate, and don't bother to actually make the check.
5. Testimonials. There's a good chance the person giving the testimonial is connected to the investment promoters, or non-existent. Even question endorsements from famous people. According to Consumer, one New Zealand promoter claimed that Queen Elizabeth and Muhammad Ali were involved with his company.
6. Referrals to "independent" offices or websites that aren't independent, or to reputable companies. A while back, promoters of share-picking computer software kept dropping the name of a major stockbroking firm. When phoned, the firm's principal said he liked to get business from all share traders, but in no way endorsed the software.
7. Classy-looking literature on high-quality paper. A promoter may be willing to spend a bit to rip you off a lot.
8. A recommendation from a friend or community or church leader. "Affinity fraudsters" gain the confidence of such people, and may promise some profits from their scheme will go to the organisation. Often these are pyramid schemes.
9. Guaranteed rent. Some sellers of rental properties guarantee a certain level of rent for several years. The rent is well above market rates, subsidised to make the property look more attractive. When the guarantee ends, rents plunge.
Investor beware
If you're considering an investment, don't proceed unless it has:
* A prospectus and an investment statement. Read at least the investment statement, particularly the section on risk. If there's anything you don't understand, seek more information or give it a miss.
* A physical address, not just a PO Box number.
* A New Zealand phone number. Ring it to make sure it is correct.
* Remember, the "If it looks too good ... " cliche is not hackneyed for nothing.
* During September, we are running excerpts from Mary Holm's book 'Get Rich Slow'.
It often starts with an ad, an email, a phone call, a leaflet in your mailbox or a comment from a friend or acquaintance. Before you know it, you're considering transferring your savings, increasing your mortgage or borrowing from the promoters - whatever it takes to raise money to:
*
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