Internet investment scams An overwhelming number of investment scams are being hawked on the internet. Many websites offer so-called High Yield Investment Programmes (HYIPs), "investment clubs" or "investment games". These are usually ponzi scams in which money from new investors is used to pay returns to earlier investors to give the illusion that the scheme is successful. When the supply of new investors dries up the scheme collapses. By this time the fraudsters have spent the money or banked it offshore. The sites are sophisticated, visually impressive, and interactive. They provide chat forums for virtual communities of "investors" who swap tips and news and rate schemes by assigning images of smiley faces. Inevitably, the hot tips give way to expressions of disquiet as the returns dry up, then the smiley faces are replaced by frowns then pictures of grimacing little red devils. Some schemes and their founders attract a cult following. On some sites members who question the word of the leader or the operation of the scheme are met with a torrent of abuse from devotees and banned from the site. When the scheme fails, these non- conforming members and regulatory authorities are blamed for the resulting losses. PIPS (also called Pureinvestor and People in Profit Systems) is one scheme that has attracted recent attention from regulators all over the world, and polarised opinion in the chatrooms. PIPS is being investigated by the Central Bank of Malaysia, where its founders are based. It is also the subject of several cease and desist orders from US state regulators, and a warning by the Australian Securities and Investments Commission. It seems to have stopped making payments to investors several months ago. One of its companies, PIC Trust, is incorporated in New Zealand but appears to have no physical presence here. New Zealand investors in PIPS can contact the Commission in the first instance. Anyone tempted to invest in these online HYIPs should consider these points. Are the promised returns credible or even possible? One recent scheme promises "20% every 15 minutes". Others appear less outrageous but are nevertheless impossible to sustain. Do you understand how the scheme works? There is often very little information, or explanations are vague and confusing. Who do you contact if returns stop being paid? Many fraudsters use a false name and address, so you won´t be able to find them and nor will the regulators. Does the scheme use electronic currency? If so, how will you know whether the balance in your e-account represents real money? Does the scheme require you to send money overseas? When you do, New Zealand authorities can´t help you get it back. Beware of people promoting the scheme in forums and chat rooms. They may be the scheme operators, or early "investors" who know they will only be paid if new members join. The Commission can do very little about these schemes when they are based in other countries. However, we can act if a scheme is operating in New Zealand, or in some cases if it is expressly targeting New Zealanders. If you see a scheme that seems to be run from New Zealand please report it to us by fax to 04 472 8076 or email to seccom@seccom.govt.nz
		Financial reports under scrutiny Chief Accountant, Alastair Boult Cycle 2 of the Commission´s Financial Reporting Surveillance Programme is well underway. Financial reports of 46 issuers are being reviewed against New Zealand Generally Accepted Accounting Practice. Financial information in any current prospectuses, substantial security holder information, continuous disclosure notices and other sections of the annual report, such as the chairman´s report, are also included in the review. The Financial Reporting Surveillance Programme aims to help issuers improve the quality of their financial reports. "This will enable investors to have confidence in the credibility of financial information provided by issuers, and contribute to the integrity of New Zealand´s securities markets," says Chief Accountant Alastair Boult. The Commission will release a report on the findings from Cycle 2 before the end of the year. Later cycles will review disclosures and adjustments made by issuers as they move to New Zealand equivalents of International Financial Reporting Standards. These will include impact disclosures made prior to transition, and any other significant changes in accounting policies during the transition. The Commission´s report on the review on Cycle 1 was published in August. Reports of 16 issuers had some shortcomings. The report identifies these and how they should be addressed. The report is on the Commission´s website: www.seccom.govt.nz or alternatively a hard copy can be ordered by calling 04-472 9830 or emailing seccom@seccom.govt.nz.

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