An extraordinary scam that is netting millions

Romano Sala Tenna

Katana Asset Management

In 30 years following markets, I've seen a lot of scams. But the current one is the most dangerous yet, and people we know and care about are going to lose money unless we warn them.

Two weeks ago a Melbourne-based friend emailed me. His closest friend’s 68-year-old mother, who happens to be disabled from a stroke, had recently inherited $300,000. Using www.compare-investments.com.au, they checked for a rate better than the 0.4% on offer at the bank. 

After completing an enquiry form, they were soon emailed a "prospectus" from a global bank. This offered 4.56% for one year, 5.49% for two years right up to 9.21% per annum for 10 years.

My friend asked me what I thought. The 23-page prospectus looked professional and completely consistent with genuine documents from the global bank in question. But as I later discovered, key pieces of information were doctored, including the phone number, email address and of course the bond rates.

As I read the prospectus, my first impression was that the rates looked really good! Good, but not ludicrously high enough to raise my suspicions. And with the apparent backing of a big bank brand, it seemed like an option worth considering. 

But timing is everything in the markets. And fortunately for my friend (and unfortunately for the scammers), literally 24 hours beforehand, I had received an email from the head of fixed interest at Bell Potter Securities, warning of high yield bond scams. 

An exchange of emails confirmed that this was indeed a scam.

If this unfortunate lady had proceeded, her application form and 100-point identification check would have provided the scammers with all the information they needed to steal her identity. Worse still, if she had transferred money, it would have been directed to a false bank account and then very quickly skimmed off-shore; never to be returned.

I'm not too proud to admit that, if not for that email the day beforehand, I would not have realised this was a scam. And if a professional money manager doesn't immediately recognise an investment scam, what hope is there for the average citizen?

Most scams are easy to spot...

Such scams usually have one or more of the following traits:

  • dubious introduction – often cold calling or spam!
  • unbelievable returns
  • capital guarantees
  • unknown brands and amateur marketing materials (often with poor grammar and typos)
  • off-shore contacts – commonly from Hong Kong or Eastern Europe; my favourite one last year was a ‘financial adviser’ in Estonia offering a special deal only to close associates, to which I was graciously included despite having never met him
  • deadlines – pressure to act quickly or miss out; this last trait is perhaps the most tell-tale of all scams.

…but not this one

Several factors, alongside the impressive but "realistic" returns - especially over one- and two-year terms - actually further suggested the authenticity of this scam, including:

  • The brand was a tier-one globally recognised bank. 
  • The marketing materials were professional and consistent. 
  • The pathway to the scam – via a comparison site – appeared legitimate. 
  • The capital guarantee was in fact there, but not immediately obvious. 
  • And the contact details were for a Sydney CBD number. 

As an aside, when I phoned that number it went through to an after-hours voice recording. But earlier in the week I actually got through to a lady with an Australian accent, who definitely did not work for a tier-1 global bank!

We are in an especially dangerous time for scams, and it is not just because of the pervasive reach of technology. The even bigger issue currently is that because cash rates are so low, many mums and dads - who have often only ever used bank deposits - are now looking elsewhere.

Scammers are becoming increasingly clever and more resourceful, and it has never been quicker or easier to enact a scam than it is today. This scam was certainly deceptive, but you can bet even more sophisticated scams are close behind. We need to ensure that those most vulnerable are not defrauded.

(Ed's note: Nomura, Citi and IFM Investors are three firms that have now put out statements acknowledging that their brand has been hijacked.)

Simple steps to protect savings - yours or others

I think most scams can be avoided if the would-be victim follows three simple steps:

  1. Never feel rushed - take your time and independently verify the offer. If you're pressured to act quickly, it's almost certainly a scam
  2. Only use a licensed financial adviser - and check every financial decision with them. We are blessed in this country that we have a strong regulatory framework that licenses and monitors financial advisers; you can check to see if someone is registered at https://moneysmart.gov.au/financial-advice/financial-advisers-register.
  3. Watch for above-average returns or a capital guarantee - every scam must offer something that you can’t get elsewhere, or you won’t take the bait. Even this scam offered rates (on the five- and 10-year bonds) that in hindsight were too far above market. It also offered a capital guarantee, which only very specialised institutions can do, and only on low-risk, low-return products.

Further steps if you have time

There are some additional things to look for:

  • The ACCC runs the SCAMwatch website, which provides information to consumers and small businesses on how to recognise, avoid and report scams. Among other reasons, I recommend this website because it highlights the breadth and depth of scams operating. However, it can take time to update. For example, this current scam has been operating for several weeks and is still not listed on the website.
  • Check the purported issuer’s website for any alerts about imposter scams, and check the contact details, branding and current offers. Once again, don't rely solely on this.

As a final point, take the time to report any scams to Scamwatch. The short time it takes to fill out the form may very well save someone else’s life savings.

Please warn anyone you care about

I have been following financial markets for 30 years, and this scam passed my radar. If a seasoned market follower can be fooled, then anyone can. Our only defence is to warn those we care about. 

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Romano  Sala Tenna
Portfolio Manager
Katana Asset Management

Katana Asset Management was founded in September 2003 as a boutique investment management firm. Katana employs an all opportunity investment mandate being style, sector and market cap agnostic.

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