It sounds like the opportunity of a lifetime, but if someone calls or emails you out of the blue and offers you exceptionally massive profits in return for your money — be very careful. Chances are, you are dealing with scammers who are out to steal your hard-earned cash.
Scammers devise a lot of tricky ways to entrap money from unsuspecting individuals and run away. They may pose as brokers or authorised representatives of legitimate illiquid firms, or companies you haven't heard of.
They usually charm you into acquiring high-value rare goods or investing in stocks, shares and probably property that will supposedly multiply your capital over a hundred-fold. The promises dangled are very tempting. But in the end, you lose your money and the scammers are never heard from or seen again.
One of the most common scams is called "boiler room". It usually involves trained phone salesmen selling unauthorised shares or financial assets of companies.
"These scams can emanate from dodgy countries with a history of scams such as Ghana and Nig-eria, but also from seemingly clean countries such as Switzerland. The millionaire-making products [can also] include heavily discounted medium term notes allegedly drawn on global banks, as well as gold, physical oil and bank guarantees at heavy discounts," explains John McGaw, senior adviser at Gold Oryx.
This type of scam got its name from the hard-sell tactics employed by the salesmen who don't accept "no" for an answer and persuade you into parting with your cash. When you finally clinch the deal, they will advise you to send them the payment. Of course, they will send you some proof like shares certificates, but they may be worth less than what you have paid. The next thing you will know, the broker has disappeared, along with your money.
In some cases, they may keep updating you each month on how well your investment is doing by sending you fake statements of accounts or very convincing marketing materials.
"Sooner or later, they ask you for more money. In the process, you might have asked for money back, which they will happily pay you from someone else's account in order to prove to you that they are genuine. Then they chase you to pay more and more until one day they simply disappear," says Steve Gregory of Holborn Assets.
No qualification needed
Gregory says anyone can just set up a boiler room. "They don't need a qualification and they don't even need to register a company anywhere, though they often do. They do need quick wits and the ability to hide the truth and the persistence of a lion waiting for an elephant to fall down."
"They need a good story about something or other that is going to increase dramatically in value, whether it is shares in an unlisted company, nor land that is expected to get planning permission, or some other remotely believable project that will make you a fortune," Gregory notes.
In the United Kingdom, several investors have fallen victims to this type of scam. A 2006 survey by the Financial Services Authority (FSA) showed that the average amount lost by investors was around £20,000. Boiler room scams are not new in the UAE, either.
"People feel so foolish when they get caught up by these rogues that they frequently refuse to talk about it. Someone in my own extended family in Dubai was taken for $15,000 (Dh55,000) in recent years and when I asked him about it, he told me he had been scared to mention it once he realised he had been [conned], after I sent him an email warning him," Gregory recalls.
Last year, the Dubai Financial Services Authority (DFSA) warned the public of certain e-mails involving investment scams inviting individuals to participate as brokers/agents in an equity investment portfolio management programme.
Another fraud alert was issued this year, warning the public about an investment scheme that used fake DFSA letters.
There is more reason for people to be wary of investment frauds. Authorities in Dubai are currently pushing for the inclusion of a clause in the law to penalise participants, including the victims, of some scams.