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EXPLAINER | How to spot a fake financial services company

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EXPLAINER | How to spot a fake financial services company

Oct 19

The FSCA has recently issued warnings about scams where fraudsters are impersonating Discovery Insure, Sanlam iTrade and others.
But there are red flags that can alert you to the possible presence of a scammer.
Nicola Mawson has compiled checklists to see whether you are at risk - and whether you may be dealing with a potential fraudster.
For more financial news, go to the News24 Business front page.

The Financial Sector Conduct Authority (FCSA) has recently issued several warnings about investment scams in which fraudsters have posed as existing well-known financial services companies with the intention of stealing money.

This month the FSCA issued a warning on its website that fraudsters were impersonating Discovery Insure, Sanlam iTrade, an online division of Sanlam Private Wealth as well as iFX Brokers Holdings and its chief executive officer, Hannelé De Necker, on Telegram.

Earlier this year it issued alerts warning consumers to be cautious of fraudsters impersonating, among others, investment company RisCura Solutions, Fedgroup, the Sygnia Group and boutique asset managers Fairtree Asset Management and Denker Capital.

Last year, fraudsters had a bumper year, impersonating more than 20 companies including Stanlib’s investment platform INN8, Ashburton Investments, MitonOptimal and asset managers Rezco, Emperor and Anchor Capital.

Two very big red flags that can alert you to the fact that you may not be dealing with the real company are unrealistic, unsolicited investment offers and offers made on Telegram, WhatsApp and other social media channels.

Unrealistic returns

Unrealistic investment offers are those which promise multiples of your money over a short period, such as a few days. Traders may be able to realise such gains at times, but no one can guarantee these kinds of returns with consistency.

Most of the companies impersonated by fraudsters offer investments that generate good average annual returns over longer periods in line with the markets in which they invested – at most an annual average over a five-year investment term of six or seven percent above the inflation rate in an investment with a high exposure to listed share markets.

In the RisCura Solutions impersonation, fraudsters enticed people to invest R5 000, which the fraudsters promised would grow five times to R25 000 in a short time.

Platforms the real company does not use

Be particularly wary if an offer is made on a platform not typically used by financial services companies, such as Telegram or Whatsapp, both the FSCA and the Association of Savings and Investments (ASISA) have warned. Fraudsters also use Facebook and while many companies have legitimate Facebook accounts, they don’t typically use it for marketing and consumer education, while any investments are made via secure websites or their own apps.

Jean van Niekerk, convenor of the ASISA Forensic Standing Committee, says financial services companies that are members of ASISA have seen a sharp rise in fraud committed via social media channels in recent years, with "heartbreaking examples of how financially vulnerable consumers are frequently tricked into parting with the little money they have left".

Van Niekerk says no regulated life company, investment company or financial advice company will send you a link requesting you to share personal details via WhatsApp, Telegram, text messages, email or social media platforms.

Legitimate financial services companies may, however, use business WhatsApp accounts – for example, for retirement fund withdrawals under the two-pot system.

However, even if a WhatsApp account is used, you will be expected to initiate the process – check the information you are given to do so is from the legitimate provider. The process will also only work if the WhatsApp channel recognises your account number.

You can check the legitimate social media accounts using links from the company’s legitimate website.

ASISA member companies will also not ask you to open a cryptocurrency account to transfer money into an investment account. When this happens, you are about to be scammed, Van Niekerk says.

He says you cannot invest in a regulated financial product without going through the verification process required by the Financial Intelligence Centre Act (FICA). Any transaction that requires you to deposit money without following this process is a scam, he says.

Check the licence and company name

Checking a company is licensed to provide financial services is a must. You can check this using an online tool on the Financial Sector Conduct Authority’s website.

But be careful as fraudsters misuse legitimate financial services provider (FSP) licence numbers. Look carefully at the licence number and the name used. When fraudsters impersonated Fairtree Asset Management, for example, they used the name Fairtree Crowd Capital and Sygnia Trading was used to impersonate the real Sygnia companies which include its stockbroker, Sygnia Securities. Look for similar disparities in the name.

Remember fraudsters not only steal the financial services company’s name and logo and licence number. The names, photos and videos of key people in the company and the company address are also frequently misused.

Gerhard van Deventer, the FCSA’s divisional executive of enforcement, says scammers use deep fake artificial intelligence to create videos that purport to be celebrities such as Leanne Manas, Johan Rupert, Elon Musk, and Cyril Ramaphosa, urging you to invest in a particular product.

Double take

Beware also of what Van Deventer calls the "double take," which is when the FSCA publishes a press release about a scam, and the scammer contacts their own victims pretending to be from a different entity and offers to assist with the recovery of funds lost in the original scam at a fee.

Van Deventer says videos and details of the regulator’s own staff, including its Commissioner Unathi Kamlana, have been abused to encourage victims to fall for this scam.

Brian Bakker, technologist and writer, says when dealing with communication from a financial services company, even one you’ve used for years, the simple rule is: "treat it as a scam until you’ve proven to your own satisfaction that it’s genuine".

Scammers often try to mimic the genuine article, such as a letter from your investment company, but they change the contact details, says Bakker. "The goal for them is to trick you out of your hard-earned cash. And they will go to great lengths to do it."

"The sad reality of our hyper-connected world today is that scammers are everywhere and it’s easier and easier to find victims. To avoid being one yourself you need to be constantly on your guard," says Bakker.

Are you at risk?

Adrian Schofield, ICT veteran commentator, says when you use a digital platform to transact you are at risk of malfeasance particularly if:

You currently use or have used the services of an FSP and are approached by what appears to be a trusted source. If you believe a trusted source is looking after your interests, you may overlook something unusual about the approach.At all times, look out for suspicious communication that could be an unsolicited email, or an email (and the email address) inconsistent with previous communication.
You are on the lookout for "investment" opportunities that offer better returns than usual. Being too ready to believe you can make money quickly makes you vulnerable and can result in you overlooking the basic checks and balances.

Schofield says scammers find victims easily on social media platforms. Bakker adds fraudsters send as many emails, messages or social media posts as they can.

"This is simply the 21st century version of the pickpocket. They operate in crowded environments, distract you, take your wallet, immediately pass it to an accomplice who vanishes into the background," says Schofield.

"But why would you even contemplate doing business with a stranger or with a company that you know nothing about?"

Potential fraud checklist

Unrealistic returns are the most important and obvious sign – but also the most ignored red flag. The simple logic is that if the offeror had a recipe for success, he/she would not share it.

A claim that a would-be provider does not require a financial services provider (FSP) licence. Any person offering financial services (investments, financial advice, intermediary services, financial products – with a very wide definition that now includes crypto assets and their derivatives) requires an FSCA licence.

A product offered on social media. Social media is the most popular vehicle for scams as scammers can disappear with ease.

A sense of urgency. There is often a sense of urgency to get you to commit funds. A legitimate financial services provider should not pressure you to invest.

Pressure on you to commit more funds before you realise your investment, profits or winnings.

Poor grammar/spelling on websites and social media platforms but expect to spot this red flag less frequently as fraudsters use artificial intelligence to create their communications.

This article was first publish on SmartAboutMoney.co.za, an initiative by the Association for Savings and Investment South Africa (ASISA).

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