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
• Chain letters
• Clairvoyant scams
• Employment/work from home schemes
• Holiday scams
• Investment schemes
• Invoicing scams
• Lotteries and prize draws
• Mail order
• Nigerian scams
• Phishing
• Prime bank schemes
• Pyramid schemes
• Rent scams
• Vanity Publishing

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.