Scammers are duping investors out of millions: Charts of the week
Even sophisticated investors can fall prey to scams that impersonate major fund managers.
Once upon a time, scammers took the guise of cash-strapped Nigerian prices but today operations are much more sophisticated. Vanguard, the second largest fund manager in the world warned in March that it was being impersonated by scammers looking to sell bogus high-yield bonds. Two months earlier, IFM investors, which has $179 billion under management, sounded the alarm over fake prospectuses bearing its name.
These tactics are bearing fruit. Money lost to investment scams hit its highest level since 2018, when records are first available, according to data from the Australian Competition and Consumer Commission (ACCC). In today’s Charts of the week, we comb through the ACCC’s database to see how these scams prey on investors.
The results defy easy stereotypes: More money is lost over the phone than the web. Millennials hand over nearly as much as their parents. The millions lost are a sober reminder of the importance of learning to spot an investment scam.
Scams on the rise
Money lost to investment scams surged in 2021, rising to $130 million lost in the 10 months to October 2021. Scams range from shilling new cryptocurrencies to promising investors early access to super money. Hoaxers feign credibility with fake celebrity endorsement or news articles mimicking media sites such as the ABC.
With two months left in the year, scammers have already doubled their 2020 haul, tripling the $42 million stolen in 2018.
The increase partly reflects the growing sophistication of scammers says the ACCC. Scammers use the internet to establish fake bona fides and lure investors in.
“Investment scams have been trending higher for several years," according to a spokesperson for the ACCC. "Scammers can set up more professional looking websites and can have a social media presence which makes it harder for people to identify it as a scam."
The ACCC only publishes aggregate figures for losses but by marrying those with the number of reports made by victims, we can roughly approximate the average loss: roughly $38,000 per person.
For many investors, losing tens of thousands of dollars would scupper their financial goals. According to the ASX’s 2020 Investor Study Report, just over a quarter of all surveyed investment portfolios were under $50,000.
Don’t pick up the phone
Forget emails, investors should be wary whenever the phone rings. Investors lost more money over the phone than any other medium. Email was a distant fourth every year since 2018, when data was first available.
In the ten months to October this year, investors lost $48.4 million over phone, versus $15.6 over email and $20 million through social networking sites.
The ACCC says scammers will often follow up by phone even where first contact was via the internet.
Social media is the fastest growing front for scammers. The number of reports made to the ACCC’s Scamwatch relating to social networks sites such as Facebook or Whatsapp rose ten-fold between 2018 and 2021.
Scams can be very convincing. Take the playbook for the bogus high yield bonds. Scammers obtained people’s contact details via fake investment comparison sites, says ASIC. Unsuspecting investors were then sent prospectuses via email purporting to be from reputable managers such as PIMCO, Vanguard or IFM Investors. Spotting fakes is difficult because the prospectuses were doctored versions of originals says the ACCC.
The information looked “completely consistent with genuine documents from the global bank in question”, according to Romano Sala Tenna, a portfolio manager at Katana Asset Management who was sent the prospectus by a friend.
Young people fall prey too
The stereotype of an older investor being talked out of their money by savvy scammers is only partly true. Young people looking for high risk high returns investments are getting ensnared in cryptocurrency scams, says the ACCC. This year, 25- to 34-year-olds lost $15.5 million to scammers versus $22 million for those aged between 55-to-64-year.
A common approach promises investors high returns if they join a cryptocurrency trading platform, says ASIC. Investors deposit money and fake data mimics actual trading, encouraging investors to put more money in. Eventually scammers cut contact and the money vanishes.
For now, losses remain concentrated among their parents and grandparents. Over 45s have lost $80 million this year versus $37 million for those under 45. The ACCC says the difference may be because older Australians have more to invest or are seeking out investment opportunities for retirement.
Men are the big victims
Men report the biggest losses from investment scams. In total they lost between two and three times as much to scammers as women did, for each of the four years between 2018 and 2021.
That shows up in the average lost per scam. In 2021 men lost an average of $17,000 per report made to the ACCC. For women that was slightly lower at just over $13,000.
Morningstar’s Sara Silano has a few tips for investors looking to avoid scams. Ignore unsolicited approaches. Beware high return low risk offers. Check any information against what’s on the firm’s website.
ASIC’s advice to investors is simple. If it sounds too good to true, it probably is.
“Any prospectus offering incredible returns in the today’s economic environment is likely to be just that: incredible,” ASIC acting chair Karen Chester said in January.