Past Gulls of the Month
On the nose
Our winner this month writes:
I received a cold call from a person purporting to be from an investment group in Hong Kong. He was offering shares in a company on the NASDAQ. He said there would be a fast $390,000+ return on a $65,000 investment. This company was supposed to have patented a cheap way of extracting clean water from "hogs' effluent" in a matter of seconds. He said he would email me details of Internet sites I could use to verify his claims. Following this call he phoned back for my fax number. I declined to give him my fax number. Next thing he has rung my wife, got the fax number and faxed me an invoice and details of an account number to send the money to. I faxed back a decline advice. This could have been an honest call, but it had an odour about it.
We thought this entry had it all - a cold call offering NASDAQ shares in a high yield, agricultural "green" scheme using new technology - plus pressure selling!
Join the super rich at "Le Club Prive"
Our prize this month goes to an offshore investment club which uses the internet to recruit members. You're offered amazingly profitable, international wealth building opportunities normally reserved for the super-rich. You also get a private encrypted bank account and a keycard giving you access to your money all around the world. All this comes in an unsolicited or "spam" email offering you membership in "Le Club Prive", a private offshore investment club where you can supposedly earn between $500 and $3500 per day, and up to $80,000 - $100,000 in three months.
We believe this is yet another example of how dodgy operators are using new technology to play old tricks on their victims. Because not everybody knows how the internet works, it's easy to mislead people about what it can do. On the internet you could be dealing with just about anyone from just about anywhere. That's why it's vital to do your homework before you agree to any investment offers, including those that land in your email inbox. Before you invest in a scheme like this read our Consumer Alert on Offers on the internet
Pyramids in paradise
The ancient Egyptians would have wondered about the pyramids in this scheme. United Pacific Group Inc is inviting people to invest in a "soon to be established" bank on the Pacific island of Nauru (a so-called tax haven with laws "specifically designed to cater to privacy and tax planning purposes"). For $3000 (if you get in early) or $5000 (for those who apply later), you can take advantage of the bank's international investment opportunities and share in the bank's tax-free profits. $2000 allows you to invest but doesn't return dividends. You can also become a "broker", selling memberships in the bank and brokerships to other people. You receive a high commission for each membership or brokership you sell, plus a lower one for each membership your sub-agents sell. UPG Inc isn't registered in Australia, doesn't provide a prospectus, and fails to explain how it will achieve suggested returns of between 45% and 120% per annum on investments. Not only is this group offering shares in a bank that doesn't exist - they are asking people to build a pyramid on it!
Lost in space
Nebula Enterprises or Nebulous? That's what our scambuster wondered when a salesperson knocked on his door offering $160,000 for an investment of only $125. The glossy brochure from a Bahamas-based company said all he had to do was buy the company's manual (which would give him "the know-how and skills to achieve health, wealth & happiness in the new millennium"). He would also receive a "free unit" in an International Financial Co-operative. Payouts were based on other people he got to buy the manual or by the co-operative randomly placing "bonus units" and sharing "profits" from "high yield trading". This scheme is not registered in Australia, it has no prospectus and its sales people are totally unlicensed. You've got no protection under Australian law. You might as well buy property on Mars!
Virtual profits
This scheme has been doing the rounds country wide. According to the information sheet, you could turn $300 into $147,000 over 12 months by investing in a "virtual stockmarket" where you would learn to buy and sell shares in "virtual companies". That's a return of up to 215% a year or 60% a month - profits that are virtually impossible. Our suspicious scambuster visited the scheme's website where he learned it was a game licensed in the Commonwealth of Dominica. It did not guarantee any profits at all, and in fact could result in you losing all your money. One of the ways the game promotes itself is by signing people up as "affiliate members" to publicise it, with each affiliate receiving a "commission" on funds invested by people they join up. This can start a vicious circle where people who have lost money then join others up to try and recoup their losses.
You can't bank on it!
An old trick with a electronic age spin? This telephone swindle started in the USA, then targeted UK bank customers. Who knows when it will hit Australia? It exploits peoples' fear about the safety of banks in the run-up to the millennium. Bank customers have received a telephone call from a person supposedly working in their bank. The caller claims that the bank is having difficulty getting ready for the year 2000. They ask the customer to transfer their money to another account specially designed to protect their cash until the bank is prepared for the Millennium Bug. Customers are then asked to provide account information and authorise the transfer of funds to this account.
Luckily, it seems that no one has yet disclosed their banking details. However, the UK Financial Services Authority has warned people never to disclose personal identification numbers or other bank account numbers to anyone they do not know.
Location, location, location!
At the current low interest rates, you might have considered investing in property, and with property prices rising in major cities, perhaps you looked out of town. Well, why limit yourself to this country - indeed to this planet!
According to this Gull Awards entry, The Mars Land Authority based in Dandenong, Victoria, is having a land sale offering CASH only land packages of 100 to 1000 hectares on Mars for just $10 to $45!
Prices quoted include a deed certificate in your name showing lot boundaries. You can even choose your preferred outlook from the popular "Mountain view" or "Canyon view" to the possibly less tempting "Polar region". Prospective Martians are urged to "Secure your very own piece of Mars today!" as "LOTS are selling out FAST!".
As our scambuster noted: "I really love that CASH only bit... definitely the way I conduct my real estate transactions!".
Gosford housewife bankrolls US Government
Until recently, I worked on the Bond Desk of one of the big investment banks in Sydney. One day I took a call from a housewife in Gosford who said she had access to an unlimited supply of "super" bonds. She offered to sell us US Government Treasury Bonds that were supposedly issued in secrecy by the US Government to fund gaps in the annual budget! These "secret" bonds were "yielding" 13% for 3 to 6 months. At that time, the true rate was about 5.50%.
At that time, we had a spate of people ringing in offering to sell us these "super" bonds. In the end, we took our general number listing out of the telephone book to stop people ringing in with these mad plans.
Doubly ripped off!
A new scam to hit the US is known as the "rip and tear". Not finding it enough to merely rip off investors in a "cold calling" scam, this group of shonksters also hit the victims with a double whammy, by having telemarketers call and falsely tell them they can help recover their losses. The telemarketer gets away with it by pretending to be with a Federal law enforcement agency. So not only do investors lose their money the first time round in a dodgy investment, they lose money again when they pay the telemarketer a "fee" to help them recover their money.
Needless to say, the US Justice Department is onto this and has issued a warning. "Anyone who asks you to pay a fee so you can get your money back and says they are from the FBI is lying".
Other Gulls
The language of money
A lot of the entries we receive in the Gull Awards use investment language to attract potential investors and to convince them that a scheme is legitimate. Phrases like "principal guaranteed", "fund members" and "compounded annually". Of course, legitimate investment schemes may use these terms too. But alarm bells should ring when you hear phrases like "high return with low risk" and "get rich quick". A high return means about one or two percent higher than you would get from reputable companies offering similar types of investments. Anything more than this may signal higher risk. "No risk" often means the biggest risk of all. Some gull entries say that the information is being offered by a financial advisory business. Searching ASIC's databases can tell you if the business is licensed to give financial advice or if the scheme is registered in Australia. Don't let the language fool you!
Bird brained scam
An ostrich farming venture had performed poorly and the operator wrote to investors telling them some investors had "requested" that he find an investment opportunity that would help recover their past losses. The promoter's response? Investing in a 50% per month "secret" US Treasury security scam offered by a "very large, leading" overseas bank, who couldn't be named "for confidentiality reason". Also, investors had to stump up a minimum of $15,000 AND a Power of Attorney and sign a non-disclosure agreement. Naturally, no one held any licence to deal in securities in Australia. As our scambuster says "We've seen all the elements before, but I don't think anyone has ever combined as many as well as that (including piggybacking it on a previous scam and making it sound it's at the investors' own request!). The power of attorney is a nice touch."
Out cold
Ever received an overseas phone call out of the blue from someone offering you an "investment opportunity of a lifetime"? They obviously know all about you, including your name and financial details, but you don't have a clue who they are or how they found out about you. Welcome to the world of cold calling!
These high pressure salespeople offer you the opportunity to make high returns by investing overseas. At first you may be tempted, especially in today's environment of low interest rates. But if you don't hang up, you risk losing your money.
One salesperson from the Tokyo-based Brinton Group rang our scambuster touting stock listed on Nasdaq, which was "expected to move strongly in the next quarter." He told our scambuster that "he was wanted as a long term client once he had experienced the return on his stock." The stock was "Virtual Gaming Enterprises Inc". Even though our scambuster emphatically refused the offer, he was later bombarded with letters from the company, once again stating that Virtual Gaming "was a strong buy recommendation."
Our advice: if you are offered an investment opportunity from someone you don't know, you should ask them who they are, where they are from and if they are licensed by ASIC to offer the investment in Australia. If they aren't licensed by ASIC, don't deal with them!
Train to nowhere
An American scam raised around US$4.8 million by selling "virtually worthless historical bonds" to hundreds of investors. Many of the bonds were issued in the 19th century by companies that no longer even exist! One offering was railroad bonds, which the sellers said were still backed by gold and worth up to $10.8 billion EACH. The company offered lucky investors the extremely profitable railway bonds for only $330,000 each. Not only were the scamsters selling worthless bonds, they were also charging investors to appraise them at $1500 per valuation. For this service they received around $400,000. The US Securities Exchange Commission shut down the operation and charged the company and its directors with fraudulently selling historical bonds.
Premium insurance
Some people will stop at nothing to increase sales. Take the companies selling funeral and life insurance policies who targeted remote Aboriginal communities in the Northern Territory. Insurance agents entered Aboriginal land without permission and with business cards displaying the Aboriginal flag. Aboriginal consumers assumed that the company represented or was connected with government or Aboriginal organisations. After only a short consultation, the agents got customers to sign application forms. Many consumers did not understand the policy and did not realise they had to make regular payments throughout the life of their policy. Some assumed that they were making deposits into a fund from which they could withdraw money when needed, like a bank.
Some consumers also signed documents relating to their children, believing that these documents were needed to pass on benefits to their children when they died. However, in doing so they unknowingly bought insurance covering the lives of their children and authorised deductions from their bank accounts to pay the premiums. After we took court action, the insurance companies agreed to change their marketing techniques.
Unlicensed to make money
Some unlicensed companies appear to be selling investment advice in the guise of an "educational package". The companies advertise "educational packages", which include video and audio tapes with titles sure to attract the attention of people trying to make money, including "Minimising Tax" and "Offshore Investment Strategies". After you buy the package, you are invited to attend an offshore seminar. The bonus is you receive a discount on the cost of the seminar if you introduce six of your friends to the group. Then you're off to Vanuatu, Mexico, or the Caribbean, where you get to discuss the evils of bureaucracy, government, politics, and legal, financial and banking systems. Of course, you are also persuaded to part with more of your money. The catch is the investments which appear to be discussed at the offshore seminars are illegal in Australia, because they are not registered and do not provide investors with the necessary information to make an informed investment decision.
Caribbean dreaming
The Caribbean seems to be a popular place for Gulls. We don't know why, maybe it's the promise of sun and surf which entices even the most wary of investors. The latest scheme seems to be a virtual stock exchange where one nominated stock is guaranteed to increase by at least 10% every month, where some increase by much more than this, where they will pay you $50 to fill in a survey and give you a 25% bonus for every $1 you send them. The promoters encourage you to invest $30,000, to keep the big boys out of the game!
The worry with this scheme is that it actually appears to work and therefore, generates credibility in its early vital stages by attracting a lot of new investors. The problem is what will happen when there aren't any new investors?
Scams ahoy
Preying on war veterans takes a particularly odious type of swindler. Our scambuster recalls a letter addressed to his father, who had recently passed away. It was typed on an old-fashioned typewriter, and had several mistakes which were hand edited. The letter was photocopied and sent to people who were in the Navy in World War II. It began "Dear Shipmate" and was full of colloquialisms from the 1940s, and was obviously aimed at getting the trust of older people. The bottom line was that it was asking war veterans to send their savings to a fund being set up to benefit older people and to sell nostalgia items to them. Who was really meant to benefit? In this case, the scammer didn't even bother to check if our scambuster's father was still alive.
Virtual unreality
Our Gull Awards mailbox has been running hot with entries about a US internet company, FreeBanco, which is giving away free stock as "one of their stunts to receive more awareness". Cashing in on the internet fever, the email says the last company to do this was Yahoo. They are now listed on NASDAQ and the stock has increased by 3500%. All you have to do is register on the website to get 5 free shares. As a bonus, if you recommend it to other people and they register then you get 3 extra shares per person you recommend. To get in on this offer you should "Forward this to anyone you think of. Be quick! It is a time limited offer!".
Before rushing off to give your personal details and those of your friends to a "free stock" offer, ASIC Director Electronic Enforcement Tim Phillipps has warned "In the Cyberworld there is significant value in your own personal email address. Unless you are prepared for a bad case of spam (unsolicited email) in the future then do not give it away - especially when you receive nothing in return," he said.
"A promise of share credits in a company that has not yet been incorporated and may never list publicly is a share in virtual unreality !"
Read our media release about free stock offers.
Punters beware!
"Having a flutter on the ponies" is never a sure thing, but you could be taking your chances with this Gold Coast-based international betting scheme.
Enterprise Solutions 2000 Pty Ltd offered to "invest" money for clients on Hong Kong horse races at a higher rate of return than banks, shares or property. Newspaper ads suggested investors could earn up to $8000 a month for "doing nothing".
To protect investors' money, ASIC took court action. Enterprise Solutions 2000 has undertaken to stop operating this unregistered scheme and to freeze money it has already received until further notice.
The "Forsythe" saga
This scam tells a familiar story, but what qualifies it for the Gull Awards are the extraordinary lengths this swindler went to, in order to deceive his clients.
Stuart Forsythe was a Newcastle tax accountant and financial adviser who's now in gaol for stealing over $1million worth of retirement savings and superannuation funds from his elderly clients.
As a special service, he invited his clients to have statements about their investments sent straight to his address. It would be so much easier, he told them, if he had all their statements in his office ready to prepare their tax returns.
Unfortunately, Forsythe's extra service wasn't intended to benefit his clients. Once they agreed to his proposal, he forged their signatures so he could divert money into his own accounts. Although he was found out and prosecuted, his clients are still trying to recover their money.
The moral of the story? Although it can sometimes seem daunting, it's important to check your paperwork. And always get original statements sent to you, not to your adviser.
Emu mania
A company operated an emu breeding scheme on a property in NSW. The company didn't have a licence from the National Parks and Wildlife Service to keep emus on the property. The emus were meant to be tagged and their chicks allocated to investors or "owners". Pretty straightforward really. Here's the glitch. The emus were kept in poor condition and started dying. It seems that tags were removed from dead birds and placed on live birds, making it impossible to match emus to owners. There were also a large number of untagged birds which belonged to the scheme, but not specific investors. To top it off, the operators didn't even keep records of dead birds.
The RSPCA stepped in and, because of the sorry state of the birds, seized them all. The emus were sold off and the company went into liquidation. The last we heard was that after paying for the cost of selling the emus and for feed, there's no funds left over for investors.
A right royal utopia
Sun, surf, no taxes, a tropical paradise, what more could you ask for? A certain "Prince Lazarus" was offering this scheme over the internet: a tax-free haven in the Caribbean called New Utopia, built on concrete platforms on an underwater land mass. Seems like a lot of investors have the same dream and sunk their money into the phoney $350m bond.
A federal judge in Tulsa, Oklahoma has granted the US Securities Exchange Commission (SEC) an emergency restraining order against Prince Lazarus (formerly known as Lazarus R Long) and his New Utopia company.
According to the Accountancy International journal, the SEC officials say this is the latest in a long list of fraudulent investment schemes using the internet. The schemes being offered include share offerings in eel farms, coconut plantations, and last but by no means least — exploration of a near-Earth asteroid.
One for Christopher and Pixie?
This amazing deal was offered by a company in Vanuatu which had a number of Australian directors. The company prospectus was posted on the internet, and investors told of the unbelievable investment offer. Not only was it possible to buy into condominiums and shares in the company, investors would also be lucky enough to get citizenship of Vanuatu and a Vanuatu passport as part of the deal!! Not surprisingly this deal only survived a couple of weeks before the Vanuatu government uncovered the scam and insisted it was taken off the internet.
Sunken treasure
Everyone dreams of finding treasure or being involved in a film, though it's not everyday we're given the opportunity. Christopher Paul Woolgrove from Nan Hai Exploration Ltd. tapped into these human desires, offering the chance for people to be involved in both. He managed to raise $59,500 for the production of a film documentary about the recovery of a Spanish Galleon, Nuestra Senora de la Encarnacion, which sank off the coast of the Philippines. Unfortunately, the survey of the sunken ship resulted in the recovery of very few artefacts and so didn't make for a very exciting documentary.
Well-connected
It's important to look into a company's history before rushing in and handing over your money. This scam should hopefully show why. Amazingly it was run by two 15 year old boys operating in a converted garage in the Sydney suburb of Auburn. Like their 380 investors, they saw there was big money to be made from the Internet and telecommunications companies.
Calling themselves Internet 1 Pty Ltd, they advertised as a discount internet service provider, reselling internet access to the public from a third party. It's unlikely the customers who paid $234 for 12 months connection to the internet knew anything about the company, let alone that the only Director was one of the boy's fathers, who apparently played very little in the day to day operations of the company. ASIC got wind of the scheme when a number of subscibers complained about connection problems. If only they had done an ASIC company search they may have thought twice before investing in a company which hadn't even properly appointed a Director.
The next Crocodile Dundee?
John X and Steve Y were two NSW-based promoters who had apparently spent five years studying the mechanics of movie making, and in particular what makes a 'Super Successful Film' (their emphasis). The result of those years of work was the script for a feature film called Kangaroo Casey and an international promotional campaign which would involve a treasure hunt for 'a cool $10 million dollars' prize. To appeal to investor's business savvy, they promoted the scheme by saying 'People who make money play by a different set of rules than the 97% who don't...In the case of an Australian film investment what have you got to lose because it's all tax deductable.' The promotional material did not say how they were to raise the $10 million prize money or who was going to star in the film. The only figures in the promotional material were what returns the investor should expect from investing in the film.
Depending on the success of the film, they quoted a return of anywhere between $200 million to $500 million. The material was notably silent on one point: never had any Australian film, including Crocodile Dundee, achieved that kind of success. The projected box office returns were so exaggerated as to be utterly meaningless. The film never got off the ground despite a newspaper report that John Malkovich and Robert
De Niro were being wooed for starring roles. Instead investors' money had been deposited into John's personal bank account and they had spent most of it without a single reel being shot.
How to enter a Gull
Anyone can enter the Gull Awards. If you know about an outrageous, far-fetched or unbelievable financial scam, email us a brief summary (about 100 words or less) about the scam. Email to: gullawards@asic.gov.au. You'll be in the running for the Gull of the Month award. We will give a $50 cash prize each month for the best entry.
What happens next?
The information you give us about financial scams is important. It helps us catch the operators of shonky schemes and to shut them down. Our complaints section reviews the Gull Awards for information about scams. We have already investigated some schemes.
Complaining about a scam
If you want to complain to us about a financial scam, our How to complain page gives you information about making a complaint to ASIC and has an online complaints form.
Sales offers and promotions about consumer goods and services are covered in Australia by state and territory Offices of Fair Trading or Offices of Consumer Affairs and by the Australian Competition and Consumer Commission. You can contact one of these organisations for complaints that fall under these areas.
Our internet safety checks
Before you invest, you can protect yourself by doing a free Internet search on our ASIC Searches page. You can find out: if the company you want to invest in exists and has a prospectus, and if a company running a managed investment scheme has a licence. You can also see if your adviser is licensed.
Visit our Search ASIC's databases page for more details about our internet searches.
Updated: 21/09/2000 |
