What’s New?: News Releases 2005 | Securities Commission

The phone rings. Out of the blue you're getting the low down on an American company poised to make a breakthrough with new technology or a medical discovery. The shares are listed on the Nasdaq stock exchange but the company is little known and the shares are very cheap. If you buy now, before the breakthrough announcement, you'll make a huge return.

"Calls like this have resulted in New Zealanders losing millions of dollars overseas," said Securities Commission Director of Enforcement, Norman Miller. Small business owners in New Zealand are particular targets for fake investment offers by bogus brokers. The strategies they use to scam small business owners are constantly evolving.

"These international fraudsters regularly change their tactics, their names, their websites, and the countries from which they operate to avoid detection and to keep the money rolling in," Norman Miller said.

The calls began in a big way in the late 1990s. People who sent money to a "broker", either did not receive share certificates or, if they did, the shares turned out to be worthless. Often there was no share purchase at all, and the money was quickly moved to other countries, to the people behind the scam.

The first calls were from Thailand, the Philippines, and Indonesia. The callers spoke good English, had English names, and were extremely convincing. They telephoned from "boiler rooms" where many callers operated for long hours.

The pleasant approach could change dramatically if a person wanted to sell their shares or pull out of the deal. Some people were threatened with legal action, but usually when victims tried to get their money back, the "brokers" became impossible to contact.

When victims can provide names and contact details the Securities Commission writes to the "brokers" seeking their credentials and pointing out their non-compliance with New Zealand law.

"We also contact our counterparts in the other country asking if the firm is registered to conduct securities business," Norman Miller said. Invariably there is no reply from the "broker", and a "not known" reply from the securities regulator.

The Commission began to publish the names of these "brokers" on its website (www.seccom.govt.nz) warning people not to do business with them. Subsequently regulators in Australia, Hong Kong, and other countries have published their own lists. Hundreds of firms are now named on these lists.

In 2001-2002 liaison between the securities regulators lead to actions against boiler rooms in Thailand and the Philippines. Publicity about this in New Zealand resulted in a deluge of calls to the Commission revealing that people had sent many millions of dollars to these scams.

However, new twists soon emerged. People who had bought worthless shares were phoned again, this time by a bogus lawyer offering to take action to recover their money. These calls were backed with faxed documents or referrals to websites which looked impressive and genuine.

Of course, more money had to be sent first. Many people, anxious to recover their money, were duped a second time.

Currently people are being called by an apparently different "broker". This person has a buyer for the worthless shares, possibly as a tax write off, and will trade them for much more valuable shares. Once again, of course, money must be sent first as a "clearance fee" or "transfer fee".

If the victim challenges the "broker" they will be referred to a bogus website or "authority". These are part of the scam.

"We urge people not to buy shares from overseas callers," Norman Miller said. "These scams are rife and people cannot get their money back once it goes out of the country."

TIPS ON OVERSEAS CALLERS OFFERING SHARE DEALS

Hang up on callers offering great share deals - why would they, except to get your money?
Resist the temptation to engage with the caller - they will use all their skill to part you from your money.
Use a New Zealand broker who is regulated under New Zealand law if you want to buy shares in overseas companies.
Don't send money to overseas telephone callers .
Money sent out of the country is virtually impossible to recover.

Kiwis lose millions in overseas share scams