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Sexy investment or an investment scam?

Sexy Investment or Scam?

We have recently been assisting one of our intelligent clients to extricate themselves from an investment that looked exciting but turned out to be a scam. (More on that below).

But we thought this was a good opportunity to let you know that as part of our legal responsibilities, we have to monitor your withdrawals from your portfolio and from your KiwiSaver.  If we see unexpected withdrawals, we need to discuss them with you, as the law requires us to do this under our Anti Money Laundering responsibilities.  But it will also help us with helping you if you are looking at an investment that you think is sexy, but may in fact be a scam.

FX Revenues or VHNZ Ltd

Our client became aware of this investment and thought that it would be a good way to learn more about investing and play with some of their retirement savings.  Some of the ways that you might come across an investment like this is through an online video ad, a cold call, or someone you know telling you about the investment opportunity.

Unfortunately, our client decided not to talk to their adviser as ‘they knew that we would say no’.  That in itself is a bit of a heads up that you need to dig deeper.

Please note that we are always happy to look at investment opportunities that you come across, we should be able to work out whether it is a scam or not pretty quickly (we worked this one out in about 5 minutes) and we will give you some feedback on the things you need to be aware of if we feel that it isn’t a scam.

Some important pointers from this clients experience

1.    Does the organisation trade under other names

Always check to be absolutely certain whether the organisation has other names, and then always google all the company names and then google again with the words ‘is xyz a scam’.

2.    Understand what you are signing up for

If you have to sign a contract, be absolutely certain that you understand what you are committing yourself to.  We are happy to look at it if you find yourself in a situation with a contract to sign, although we aren’t lawyers there are things we can spot immediately.  If you aren’t comfortable with us looking at it, please get a lawyer to look at it.

In this situation, the client committed to a contractual term of 12 months where they had to place 3,000 lots of trades in equal amounts (ie 250 lots each month), or they were breaking the contract. 

If they broke the contract – this is what happened:

[8.2] the company can  'apply additional fees to the clients account.  The amount of the fee shall be determined at the discretion of the company'.  

[9.2] if you haven't completed the required volume of trading and you didn't extend the agreement, the client's account will be charged a fee and/or the profits made by the client might be cancelled.' 

When read in conjunction with other clauses (and with the separate 23 page Terms and Conditions on the website), this could be loosely translated to, we can charge any fee we like and take back all your profits, in fact, we might just take all your money.

3.    Keep it secret…

Be very wary if the contract says you aren’t allowed to disclose the terms to any third party.  Ask yourself why this would be the case.

4.    High pressure sales

The client was only going to start with a $5,000 investment (which we probably would have said okay, but no more as it is very risky and probably a scam).  But, as is the feature of such scams, there was intense pressure from the sales people (and their boss) to keep adding money.  The total amount invested ended up with $62,000 before the client said ‘no more’, and it took quite a bit of arguing for them to back off.

5.    Is the company a real company?

This is something that we have taught our clients to check and this client checked this.  However, it has made us realise that this isn’t enough information – see point 6.

6.    Does the organisation have a financial services licence in all markets that it offers services in?

These days all legitimate markets require a financial services licence to provide financial services.  If an organisation doesn’t have a licence, then you have no recourse to the regulator (or anyone) when/if something goes wrong.  At Moneyworks, we spend many hours a year ensuring that we fulfil all the terms and conditions of our financial services licence.

When we googled this company, the first three search results came up saying that it didn’t have a licence to operate in different jurisdictions.  This should be an immediate red flag.  If an organisation has nothing to hide, they will be licensed.

7.    Is the offer too good to be true?  Because then it usually is.

Our client was excited to have turned $62,000 into another $140,000 profit within 4 months (even though 79% was ostensibly held in cash).  This is a return of 226% in 4 months (which if annualised would be 680%).  This should make an investor stop and ask – what is happening here?

8.    What are you investing in – do you understand this?

The investments that the client was investing in are CFD’s (contracts for difference), which are basically bets on whether the value of an investment is going to go up or down.  There is a fee to the organisation that runs the platform, but the risk is all the investors.

These can also be put in the same pot as ‘derivatives’, which are the most complex investment available, so complicated that we are reluctant to use fund managers which make this a core part of their investment approach. 

It can go wrong so easily.

And when it goes wrong it can cost big.  If it goes wrong (you bet the wrong way), you can face a ‘margin call’.  This means that you have to add more money to cover the shortfall for the investment bet going the wrong way.  This could be a lot more money than you invested in the first place.

Know and understand what your potential liability could be.

9.    The two crucial questions we always ask in relation to every investment:

a.    How are you going to make money and

b.    How are you going to take money (ie how are you going to get your money out of the scheme?)

The termination procedures of this investment can only be carried out if those 3,000 lots are traded as stipulated in the contract.  If not, then the organisation can apply those discretionary penalties.

10. There are a few things that indicate to us that this investment offer is probably a scam (this is from my email to the client), if you have any of these ‘indicators’ question the offer, twice, three times, talk to your adviser before committing:

1. High pressure sales

2. Locking you in for 12 months

3. Confidentiality clauses

4. No registration as a financial services offeror in any of the jurisdictions that it operates

5. Websites offered under various names (moving on to the next one when they get called out)

6. Appeasing you by giving you back 5% of your own money each month. 

At this stage, we don’t know how our client will fare in getting their money out.  The client agreed that they wouldn’t put in any more money in, and had an agreement with the company in writing that that was the case.  However, applying to get their money out before the end of the 12 month contract means that they will lose quite a bit of money, so they have committed to sticking to the end of the 12 month contract.  We will update you on progress at the end of that time period.

But we do know that others haven’t been able to get their money out, that the New Zealand Regulator the Financial Markets Authority (FMA), issued a warning about this scheme in August 2022 – advising that it is a unregulated offer and could be a scam (this notice was for the associated company, before the organisation changed it’s name and websites to keep operating).

Is it really worth all that stress?

We also know that other people in New Zealand are furious about the offering and the ‘scam-ness’ of it:  https://www.thepress.co.nz/nz-news/350089520/absolutely-evil-scammers-take-100000-pensioner-online-investment-ruse

Remember, we are here to help keep you and your money safe.  But it we don’t know what you are doing, we can’t help you.  We won’t be judgmental, but we will do the research and let you know our thoughts and concerns.



 

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