Beware of sudden chills ASIC

Tuesday, 01 October 2002


    Overseas cold calling scams target professionals and small business, says Peter Kell, executive director, Consumer Protection Directorate, ASIC.

    Did you know that international cold calling investment scams are targeting Australian small business owners, managers and professionals, not just the financially inexperienced? Your best protection is to always check if the caller holds an Australian licence to advise or deal in shares or other investments. If they don't, hang up and have nothing further to do with them.

    So what is cold calling?

    Cold calling is where overseas salespeople phone you out of the blue and use high pressure sales tactics to try and flog you shares or bonds in overseas companies. They make golden but false promises and use "virtual offices" to mask their true size, purpose and location. Cold calling operators use sophisticated sales techniques such as:

    • well-scripted sales techniques applied in a disciplined way

    • a compelling story with all the right investing jargon

    • glossy brochures, slick websites and well-produced information

    • names that sound like respected financial institutions

    • professional follow-up service – so long as you keep sending money

    • referees available with Australian phone numbers (but usually, the number re-routes back offshore).

    Once you send your money outside Australia into the hands of these cold callers, it's almost impossible to recover.

    Our findings

    In the first study of its kind, ASIC interviewed a sample of people who had been cold called. We found 60 percent of those targeted were business owners, managers and professionals. When we studied the victims, business owners were hit particularly hard. One in every three victims owned a business, and business owners lost money twice as often as other occupational groups. We identified seven risk factors that encourage these swindlers to prey upon small business. Business owners tended to be more susceptible to cold calling scams because they are:

    1. used to cold calling, because they often receive legitimate sales calls and make cold calls themselves

    2. willing to take investment risks

    3. sympathetic to start-up businesses looking for capital — cold calling scams often sell shares in start-up companies, by promising future growth

    4. able to find cash through their business, loans or self managed superannuation

    5. easily identified by cold calling operators through advertising in places such as telephone directories

    6. open to sales pitches quoting "close relationships with the company" and "access to good information" because that's how they often find their own opportunities

    7. sometimes sceptical about warnings from government agencies.

    To date, some 6000 Australians have lost at least $400 million to international cold calling investment scams. Many of those ripped off are now being targeted for secondary scams. Investors already stung are being approached with offers to swap shares for a fee. Our message remains the same: Hang up on unlicensed businesses or risk losing your money if you invest with them.

    What happens if you deal with cold callers

    If you deal with overseas brokers you:

    • lose the protection offered by Australian law

    • cannot confirm if your money has been invested on your behalf

    • run the risk of being unable to recover your money after it is sent overseas.

    Overseas brokers rarely give adequate evidence that they are legitimate businesses in the country where they are located. In many cases they use phone and mail forwarding services and serviced offices, and do not actually have a physical presence in the country in which they claim to have an office.

    OTC Bulletin Board is not NASDAQ

    Overseas cold callers may suggest that a share listing on an "Over the counter (OTC) Bulletin Board" in the USA is equivalent to a listing on the popular NASDAQ exchange. The United States Securities and Exchange Commission warns that fraudsters who claim this are trying to mislead investors into thinking that the company is bigger than it actually is. The OTC Bulletin Board is not part of the NASDAQ stock market.

    How to deal with cold callers

    When you are cold called:

    • Check our "Licensed financial services businesses" database to see if the person holds a licence from ASIC or is an authorised representative of a licence holder. Never take the word of the salesperson, even those who claim they have a licence

    • Search our "Prospectuses" database to see whether an offer document has been lodged with us

    If the cold caller or prospectus you're considering does not appear on the relevant database above, hang up and have nothing to do with them. To do these searches, visit FIDO, our consumer website and click on these databases under "Check our lists on the left" on the homepage. You can also check our blacklist of known cold calling organisations. From our FIDO homepage, click on "cold calling" on the right, then "List of unlicensed overseas cold callers". So save yourself the pain of being swindled out of your hard-earned cash – hang up on these cold callers.


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