Fraudulent investment schemes continue to proliferate on messaging and social media platforms.
The FSCA this week alerted the public to a Telegram scam run by individuals purporting to be from Brantam Financial Services Holdings (Pty) Limited.
“The FSCA received information from Brantam Financial Services (a registered financial services provider) that certain individuals are fraudulently using their company’s logo, contact details, and directors’ photos on Telegram to scam unsuspecting clients,” the Authority said.
According to the FSCA, scammers promise returns that are two or three times the initial lump-sum investment within just four days. Clients are also requested to invest in Bitcoin or any other cryptocurrency.
“Brantam has confirmed that it is in no way associated with the individuals on Telegram offering lump-sum investments to the South African public using their name,” the Authority says.
The big issue
In a MoneywebCrypto podcast with host Ciaran Ryan, Gerhard van Deventer, the FSCA’s head of enforcement, said scammers who use social media to promote their schemes are a significant problem.
“It is a big issue because that information goes out so quickly, and so many people can be pulled in so quickly before a regulator can even react.”
Van Deventer said in response, the FSCA has “for a while now” used an external expert company to monitor social media platforms.
“If we see something that’s suspicious, then at least we can warn the public about it… We also post our warnings on those platforms. So hopefully people become aware of the issue quicker, but at the end of the day, it’s like everything else in terms of combating this type of thing. Consumer education plays a big role,” he said.
Trends in financial scams
According to Van Deventer, with cryptocurrency becoming a financial product under the FAIS Act, the Authority is seeing a slowdown in the trend to use crypto as a mechanism to perpetrate financial scams.
“It takes away some of the motivation to use crypto because you (a crypto asset service provider) cannot claim you don’t need a licence anymore,” he said.
Read: First wave of crypto asset service provider licences nears approval
He says a strong trend is the use of fake celebrity endorsements. Even the FSCA’s Commissioner, Unathi Kamlana, was impersonated in one such scam.
“We’ve had a streak of that happening. You know, Johann Rupert was there, Leanne Manas was there, Francois Pienaar, Elon Musk, with their photos… My team contacted these people or their representatives and just made them aware of it. But, yes, they were completely unaware that they were endorsing this (crypto) and making so much money on these products,” Van Deventer said jokingly.
The rise of mule crypto accounts is also “trending”. Van Deventer explained it is a way for scammers to bypass the Financial Intelligence Centre’s “know your client” requirements.
He said scammers usually approach someone at random and pay him or her to open a crypto account or a regular money account. After the accounts are opened, the person who opened them hands over the password and bankcard to the one who paid them.
“So, of course, as you can imagine, if the public pays money into that account, the money hardly touches base in the account, and then it’s gone. When we start our investigation, we end up with a guy who has no idea what’s going on.”
Another trend is unlawful association with a regulated FSP or intermediary. In this instance, an unlicensed operator uses the FSP number of a regulated FSP to create the impression that he or she is associated with it.
“Often (from) quite a substantial FSP and, of course, that creates a lot of comfort for the public. And if you’re a busy man or woman, and you see that, you might just be tempted into carrying on without really checking it,” said Van Deventer.
Telltale signs
When it comes to spotting a scam, Van Deventer said an investment product that promises unrealistic returns should be avoided at all costs.
“The interesting trend we are seeing here is that the promise of the unrealistic return is not over a month or six months anymore. It’s now sometimes down to hours. They will promise you a magnificent return within so many hours.”
Another red flag is when investors are required to pay a fee when they want to withdraw their funds from the scheme.
“There’s always some story that, because of some fine print, you have to pay an additional amount, and a lot of people do. They will call it a tax… There’s some tax they dream up… You shouldn’t be charged for that. I’m not talking about a bank fee or something like that,” said Van Deventer.
Another warning is if you are told the provider does not need a licence. Van Deventer said now with crypto also having joined “the party”, it’s tough to imagine a situation where someone can offer financial services without the required licence.
“There’s a little bit of exception in private equity, but the public should never be approached for private equity, so it’s really not relevant. So, to claim that a licence is not required, that’s a big red flag,” he said.
Vague or confusing information about the product or the investment process should also ring alarm bells. For a licensed operator, there are strict rules about disclosures and making sure their clients fully understand what they’re getting into.
“We so often interview somebody, an investor, and we say to him, what was the financial product that you bought, and they say they’ve got no idea; that it is just called an investment… There is a reason why it is so vague and confusing,” said Van Deventer.
Poor grammar or spelling in sales pitch material, as well as creating a false need for urgency, are other things to be wary of. Van Deventer said the latter, especially, is something that the public must be careful about because “there is no reason for a good deal to go away”.
Van Deventer warned that even if investors didn’t see any of these obvious signs, they should remain cautious. Scammers, he said, are becoming more sophisticated by the day, so just because none of these red flags are present, does not mean investors could lower their guard.
