Public issues

Scams

Updated: 15 Jun 2009
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Introduction

Stay safe with our scam protection resources.

It may be a recession but one business that’s showing no signs of a slow-down is scamming. Economic gloom appears to be something of a boon for fraudsters and scammers.

We look at the latest scams – and at what you need to know so you can protect yourself.

Fraud facts

National crime statistics show 2008 was a good year for fraud. Recorded cases rose 18.9 percent, bucking the decline since 2003. Increases in credit card and computer fraud helped to push up overall figures.

Similar hikes were reported overseas. The US Internet Crime Complaint Centre says complaints of online fraud hit a record high in 2008. The top two complaints were: non-delivery of goods and/or payment and internet-auction fraud.
 

Fraud facts

  • 13,494 cases of fraud were recorded in 2008. 
  • Around 30 percent of these cases involved credit- and bank-card fraud. 
  • 546 fraud cases involved illegal use of a computer or computer software. 
  • About half of all recorded frauds are resolved each year.

Warning signs

To avoid being ripped off, it helps to know what to look out for.

The golden rule - if it sounds too good to be true, it probably is!

Unless you can satisfy yourself that the offer is genuine - preferably by contacting the company making the offer directly - we recommend that you ignore it.

Other warning signs include:

  • Failure to give adequate contact information - probably the single most important warning sign. Many companies hide behind a PO Box number, website or email address. If the company does not provide a physical address be extremely wary. The absence of a contact phone number and GST registration number (for NZ companies) are also signs that a company may not be legitimate.

  • A fabulous prize is offered and all you have to do to claim it is provide your credit card details or send money overseas.

  • A request to "send money now". Most genuine offers will allow a free trial period. A "money-back guarantee" is not good enough: if they want to steal your money, this guarantee will disappear with the company itself.

  • A demand to "do it today!" Always take time to consider an investment or sales opportunity.

  • A claim that it is "completely legal".

  • A claim that the company complies with overseas legislation. Even if this is true it's not relevant if the scheme is illegal in New Zealand.

  • A claim that the scheme is endorsed by Consumer NZ (or Consumers' Institute), Commerce Commission or the Ministry of Consumer Affairs. These organisations do not give approval to specific schemes.

  • The return address is to a post office box in Richmond or Vancouver, Canada. For some reason an awful lot of scams - particularly prize or lottery type scams - are sent from Canada.

Major scam types

Barely a week goes by without a warning being sounded about a new scam on the scene. Internet security providers, such as Symantec and McAfee, have reported a rise in recession-themed scams. There’s also a variety of old cons doing the rounds.

Most scams will fall into one of these main categories

Betting schemes

These usually require that you purchase software - often at a cost of several thousand dollars - which will enable you to predict the outcome of horse races or lotteries.

Despite the fraudster's claims, it is not possible to predict the outcome of random events such as horse races with any certainty.

Betting software is often marketed by showing what you would have made had you invested money in the previous year. Of course, it is easy for the fraudster to demonstrate that you could have made wads of cash when they know which horse won every race - hindsight is a wonderful thing.

Chain letters

Chain letters are similar to pyramid schemes, except they don't always ask you to send money. The letter may, for example, simply threaten the recipient with terrible luck if they don't pass it on. Our advice is to throw it in the rubbish bin.

Clairvoyant scams

These usually take the form of letters advising that you have been specially selected to receive advice from a "famous" psychic or clairvoyant, revealing the secrets of wealth, success and happiness. Amulets with good luck properties may also be promised. The letters ask you to send a small fee in order to receive your fortune.

Our advice is to ignore these letters completely. If you want free advice from a "clairvoyant", try writing to a women's magazine.

Employment scams

These can turn up anywhere from a newspaper’s situations vacant pages to your email inbox. They offer the chance to work from home at your own pace – and still make loads of cash.

Symantec reports one recent scam ad offered the chance to earn “several hundred dollars of cold hard cash per-week” by writing your own blog. The scam required budding bloggers to sign-up online for “only $2.95” to get access to an exclusive members-only area. Of course, once you sign up the scammers get a free run on your credit card.

These scams usually have you sending money to a PO box or forwarding your credit card details in advance. You never see your money or hear from the company again.

Holiday scams

If you’re looking for a cheap mid-winter holiday, be wary of telemarketers selling “discount” vouchers for accommodation or flights. These scams are regularly on the go, enticing victims with bogus offers of an exotic vacation at a fantastic price.

While there are legitimate companies offering holiday vouchers, don’t buy any vouchers without first checking out the company that sells them. It also pays to check whether organisations at the other end will accept the vouchers. We’ve had many calls about problems with these schemes. 

Investment schemes

Scams are sometimes presented as though they are a legitimate investment. The trick here is to know what to look for. As well as all the usual warning signs, be wary if:

  • the rate of return seems too good to be true
  • the person marketing the scheme refuses to provide any useful documentation, such as an Investment Statement or Registered Prospectus
  • you are phoned up out of the blue by someone - usually calling from overseas - who wants to sell you an excellent opportunity to invest.

If you spot any of these points then give the scheme a miss.

In general, if someone offers you an investment opportunity, check it out thoroughly first. Anyone calling themselves an investment adviser is bound by law to give you certain information.

If they handle your money themselves, they must tell you:

  • whether it will be held in a trust account
  • if their money handling is audited
  • what records are kept and what access you have to them
  • the extent to which they may use your money for their benefit in the meantime

If you have any doubts, get a lawyer to look over the contract before you sign.

It's worth noting that many investment scams are now perpetrated via the internet.

For more information investment scams, see the NZ Securities Commission and the Australian Securities and Investments Commission.

For information about online investment scams, see the US Securities and Exchange Commission's advice on How to Avoid Internet Investment Scams, and resources provided by the US Federal Trade Commission.

Invoicing scams

People often ring Consumer NZ and complain that someone is trying to bill them for advertising - or other goods and services - they did not order. This practice is known as "pro-forma invoicing" and it is illegal. Often people using this approach claim to support a charity or worthy community group.

Click here for more information about invoicing scams, including a list of publications known to be involved in pro-forma invoicing.

Lotteries and prize draws

Prize scams are extremely popular with fraudsters. Anyone reading such a scam is promised some fabulous prize that they are guaranteed to have won. All the reader has to do to claim the prize is pay a small administration fee... which they never see again. They don't get the prize either.

A considerable number of these scams originate in Canada. So be particularly wary of any unsolicited correspondence you receive from there.

Overseas lottery tickets

A variety of overseas lottery tickets are marketed and sold by direct mail in New Zealand. But be warned: none are legal in New Zealand and fraud is often involved.

The Gaming and Lotteries Act 1977 says anyone wanting to sell an overseas lottery here must obtain permission from the Minister of Internal Affairs. The Department of Internal Affairs has advised us that "no approvals have been granted in the last nine years".

For this reason, we recommend you avoid purchasing overseas lottery tickets if you are offered them. Many schemes are promoted by fraudsters, so there is a significant risk you will simply lose your money without ever seeing a lottery ticket let alone any prize money.

If you want to have a flutter on a lottery, we suggest you stick to one that's local and licensed (this is required if the total value of prizes exceeds $500). Look for the words "by licence under Section 35 of the Gaming and Lotteries Act 1977".

Mail order

Mail order can be a great way to buy, and there are many legitimate companies using this selling approach. However, there are also lots of mail order scams and ripoffs.

To reduce the risk of dealing with a ratbag, look for:

  • A written, money-back guarantee if you are not happy for any reason.
  • A physical (street) address, contact phone number or GST registration number. Never buy from a company that just gives a PO Box number.
  • When ordering, ask if the company is a New Zealand one. This is an advantage because if you have problems and go to a Disputes Tribunal, New Zealand companies can have tribunal decisions enforced against them.
  • A company which is a member of the New Zealand Direct Marketing Association. Members are required to meet the association's code of ethics and follow its recommendations.

For overseas companies it is advisable to stick with large and well-established firms.

Nigerian scam (advanced fee scam)

One variation of investment scam that's been widely publicised comes from Nigeria (and also South Africa and other countries.)

The letters, usually personally addressed, purports to be from top officials in the Nigerian (or some other) government who want help in moving millions of dollar from a shonky business deal. They say they only want your bank account number and in return promise to make you a millionaire.

However, once you are involved, they will require large "advanced fees" from you in order to "complete the deal" - processing fees, etc ...

Beware! People here and overseas have lost thousands of dollars.

For more detailed information, see the 419 Coalition website

Phishing

In “phishing” scams, scammers attempt to get your account details and other personal information by pretending to be from your bank or another well-known organisation. Supplying this info risks having your money and your identity stolen.

Recent examples of phishing
  • Tax scams - this is where people are told they’re owed a tax refund or, in a new twist, an “economic stimulus” payment. Fraudsters posing as tax officials phone or email people to get bank account and personal details on the pretext of arranging rebate payments.
  • Survey scams - McDonald’s customers have been the target of another phishing scam. An email claiming to be from McDonald’s offered a $50 bonus for filling out an online customer-satisfaction survey. The bogus email contained a link to the survey form. Once customers completed the form, they were asked to provide their bank or credit card details so they could get the $50.

    McDonald’s put a warning on its website alerting customers to the bogus email. The company told us it would never request bank or credit card details via email. The temptation to earn extra cash by simply completing a questionnaire is what scammers are banking on. Don’t take the bait. 
  • Green scams - scammers have also started to use phishing to target consumers who want to do their bit for the environment and save money. Symantec recently warned about a spam email telling recipients they could cut their electricity bills to $0 by switching to “green” energy. The email promises punters they can learn everything they need to know about solar and wind power for “$200 or even less”. This has the usual catch: all you have to do is provide your credit-card details. Don’t do it.

Prime bank schemes

Promoters of dodgy investment schemes often claim that there is a secret international market in "prime bank" instruments and that you can get guaranteed high returns by trading these instruments. In reality, there is no such market.

Two common sales pitches for these schemes in New Zealand are:

  • You are invited to put money into a trust account, backed by a guarantee (often fake) from a "prime bank", "top 100 world bank" or "top 25 European Bank". You're told that your money will be leveraged to buy prime bank instruments which can be traded for very high returns. In fact, your money goes offshore never to return.
  • You pay the promoter a fee in return for a promise that you will be "leased" a much larger sum of money to invest in prime bank instruments at fabulous interest rates. Promoters then disappear taking your fee with them.

Pyramid schemes

While a pyramid scheme may come in many different forms, it will always have the following characteristics:

  • it will promise a financial return based on the number of people you are able to recruit to enter the scheme
  • whatever money you make, will depend primarily on the continued introduction of new members to the scheme and not the sale of a particular product or service.
  • Pryamid schemes are illegal under the Fair Trading Act.

The reason for this is simple: consumers are too often misled by claims about the likely financial returns. Because it is only possible to earn money by recruiting other into the scheme, those near the bottom of the pyramid always find that it is not possible to make the advertised return on their investment.

There are simply not enough people to support a pyramid scheme indefinitely. As a result, it is usually only those people who set up the scheme who are able to make any money.

Pyramid selling is not the same as multi-level marketing because it doesn't involve the genuine selling of goods or services. Multi-level marketing is legal in New Zealand.

Rent scams

With the property market flat, scammers have turned their attention to websites listing houses and rooms for rent. They pretend to be interested in a room, send an overpayment of rent in advance and then ask for a partial refund. But after you’ve sent the refund, you find the cheque they paid you has bounced.

The Banking Ombudsman, Liz Brown, reports one victim was left $4000 out of pocket. In this case, the Ombudsman recommended the loss be shared equally between the hapless victim and the victim’s bank. She found that the bank officer who received the dodgy cheques did not do enough to check they were genuine and therefore the bank had to take some responsibility.

Sometimes it’s the scammer offering a place to rent. You’re asked to pay upfront before you’ve even seen the room. If this happens, report it to the website owner.

Do we have to say it? Never send any money. 

Vanity publishing

These are schemes where people are encouraged to have their own works published, at their own expense.

If the company is up front about the nature of the publishing deal, it's not a scam. But some are more devious, telling people they have been specially chosen, or running literary "competitions" where the winners have to pay to be published.

Be cautious. In particular, avoid publishing schemes asking you to send money overseas.

Invoicing scams

People often ring Consumer NZ and complain that someone is trying to bill them for advertising - or other goods and services - they did not order. This practice is known as "pro forma invoicing" and it is illegal. Often people using this approach claim to support a charity or worthy community group.

See below for a list of publications known to be involved in invoicing scams

Useful steps you can take to avoid being caught include:

  • Adopt a standardised practice for approving and paying for advertising. Make sure staff know what that practice is and stick to it.
  • If somone rings selling advertising ask for contact details including their name, the name of the publishing company, their street address and telephone number.
  • Also ask for the title of the magazine, a copy of the latest issue, and the Audit Bureau of Circulation figures.
  • It's also worth checking if they are members of the Magazine Publishers Association.

And if you are invoiced:

  • Insist on written proof that your business agreed to the advertising before you pay the company.
  • Write to the company concerned. Let them know that you did not place an order for advertising.
  • Seek independent legal advice if the fraudster threatens legal action.
  • For more information on protecting yourself from pro-forma invoicing, see the Commerce Commission's internet site.

Beware these publications

  • Canterbury District Road Safety Guide
  • Child Safety Journal
  • Educational Safety News
  • Householders Service & Emergency Directory
  • Kids Road Awareness
  • Kids Road Safety
  • Local Authority Purchasers Directory
  • Local Authority Purchasing Officers Guide
  • Local Services Diary
  • Network and Trade Directory
  • New Zealand Crime Busters
  • New Zealand Disabilities Resource Guide
  • New Zealand Local Authority Reference Diary
  • New Zealand Safety and Health
  • New Zealand Safety Education
  • New Zealand Trade Safety Manual
  • New Zealand Water Safety Awareness
  • NZ Family Health Journal
  • NZ Kids & Traffic Review
  • NZ Parent & Teaching Review
  • NZ Road Safety Journal
  • NZ Road Safety Review
  • NZ Safety Awareness Journal
  • NZ Transport & Safety Journal
  • Parent and Teacher Journal
  • Regional Crime Prevention Review
  • Regional Drug & Alcohol Awareness Journal
  • Regional Health and Safety
  • Road Safe Journal
  • Road Safety 2000
  • Road Safety Review
  • Safety Education Guide
  • Safety Matters
  • Street Safety Journal
  • Traffic Safety New Zealand
  • Y2k Community Safety Guide

Virus hoaxes & urban legends

A lot of false information and hoaxes are spread by email.

Email virus hoaxes

If you receive an email warning you about a new virus, don't forward it to other people. - by sending them on you enable the hoax to act like a virus - it creates stress and wastes bandwidth, not to mention people's time.

More importantly, don't follow its instructions. For example, it may tell you a certain file on your computer is actually a virus, and should be deleted - in fact the file may be a perfectly innocent (but integral!) part of your system.

To verify whether it's a virus hoax, visit one of these online resources:

Urban legends

Many tall tales end up quickly circulating the globe thanks to email. Stay up to date with the latest urban legends at these sites:

Protect yourself

Caught by a scam? More often than not you’ll never see your money again.

  • If it sounds too good to be true, it probably is. One of the best protections against scammers is simply not to respond.
  • Never reply to any email or phone call that asks for your bank or credit card details – and don’t follow links from emails. Legitimate organisations will never ask you to do this. If anyone asks for your details, report it to your bank immediately.
  • Don’t rely on address details provided in an email. Thoroughly check out any scheme or deal on offer. 
  • Ignore any high-pressure sales tactics. 
  • If you’re buying goods online, check the billing process is secure (indicated by the "s" in the "https" part of the URL plus a padlock or similar icon on your browser).
  • Make sure the retailer has a physical address and telephone number listed on the website. Before you place the order, find out when and how you can cancel it or return something for a refund. 
  • Regularly download the latest security patches for your internet browser and operating system. Also make sure your anti-virus and anti-spyware software is up-to-date. Some viruses are designed to deactivate your anti-virus software, so a virus-scan every week is useful. (You can automate this and do it daily if you wish.)

If the worst happens

If you’ve been scammed, act quickly.

  • If you think the scam is being run within New Zealand, report it to the police. Other organisations may also be able to investigate, depending on what’s involved. For example, the Department of Internal Affairs investigates complaints about commercial spam (unsolicited commercial electronic messages with a New Zealand link). You can also report a scam to the Ministry of Consumer Affairs, which can post a warning on its Scamwatch site. 
  • If the scammers have got your bank account details, contact your bank immediately to suspend your account. If you paid by credit card, ask the bank for a charge back: your bank may be willing to cancel the charges or reverse the payment (policies vary so check with your bank). The bank may also suggest you cancel your credit card.
  • If you think you’ve been a victim of identity theft, contact the police. If details of documents such as your driver’s licence or passport have been taken, contact the organisation that issued the document as soon as you can. It’s also a good idea to get a credit check done by a credit agency.

Scam links

Links to useful scam resources

New Zealand

Commerce Commission
Responsible for enforcing the Fair Trading Act, the Commission's site has a guide to the act, and information about various scams on which they have taken action.

Ministry of Consumer Affairs
Useful information about scams.

New Zealand Securities Commission
Includes advice about investing wisely, and warnings about investment scams.

Overseas

Australian Securities and Investments Commission
Includes consumer alerts, and The Gull Awards - true stories of financial scams and shonky investment schemes. You can also check on Australian companies, brokers and financial advisers.

Better Business Bureau
Network of US and Canadian Bureaux that provide reports on business firms and help resolve consumers disputes with businesses. Includes scam alerts.

Internet Scambusters
Good US based resource on scams and ripoffs.

National Consumers League
US nonprofit advocacy group. Includes pages on internet fraud, slamming, cramming etc.

National Fraud Information Center
An offshoot of the US National Consumers League, this site contains lots of information about telemarketing fraud, internet fraud, fraud against the elderly etc.

PhoneBusters
Canadian site spotlighting telephone scams.

SafeFromScams
UK resource of articles and advice on staying safe from scams.

US Federal Trade Commission
Consumer protection resources, including advice on internet shopping.

US Securites and Exchange Commission
Useful advice for online investments, investment frauds, etc.