Why "Get Rich Quick" will only ever cost you money

13 March 2006

Why a "Get Rich Quick" scheme will only ever cost you money

As part of the global Fraud Awareness Month, the Commerce Commission and the Ministry of Consumer Affairs are advising New Zealanders to be wary of scams promising great wealth for what appears at first to be little or no outlay.

"These schemes promise great riches for little effort, targeting the cash and time poor," said Deborah Battell, Director of Fair Trading for the Commerce Commission. "The only parties who ever benefit from their inflated statements are the originators of the scam, leaving those people with the most to lose worse off than before."

The types of scams that can qualify as "Get Rich Quick" schemes include pyramid selling, advanced fee and 'Nigerian' scams, work from home and investment scams.

Scammers are sophisticated and highly organised. They continually re-invent the letters and emails they send, and clever use of technology makes them difficult to trace.

Pyramid selling, such as the recent "Rod Donald" and more common "David Rhodes" chain letters, is specifically prohibited under the Fair Trading Act 1986 as it risks misleading people about the likely financial returns. Participants in the scheme make money from recruiting new people into the pyramid, meaning someone will always be at the bottom of the pyramid and not achieving the advertised returns. Due to the limited pool of potential participants, only those at the apex of the pyramid are ever likely to make any money.

Advance fee frauds are one of the most reported scams and they come in all shapes and sizes, one of the most infamous being 'Nigerian' scams. These scams frequently include a "request for an urgent business transaction", usually the transfer of millions of dollars. However, they also require your bank account details and sometimes upfront cash to assist the transaction to take place.

These scams are sent out to consumers and businesses via mail, email and fax, engaging and luring consumers with the promise of unexpected wealth and sometimes the bonus of helping people in need. 'Nigerian' type scams are often linked to a recent political or international event.

Work from home schemes purport to offer a way to make large amounts of money from simple tasks, such as stuffing envelopes at home. Participants are usually asked to pay a registration fee to participate in the scheme; those that actually receive any work are very unlikely to make anywhere close to the promised returns.

The Commerce Commission has investigated such scams before, with Gregson Cretchein Matthews fined in June 2002 for operating one work from home scheme.

Investment scams are usually promoted over the internet, and promise high returns on an investment with no or very little risk. They often give little or no supporting information on the investment, and will have no Investment Statement, Registered Prospectus or financial statements.

The Securities Commission provides advice on possible investment scams and what consumers should do if approached to participate in such a scheme.

"Consumers need to be very sceptical when approached about a "Get Rich Quick" scheme," said Liz MacPherson, General Manager of the Ministry of Consumer Affairs. "So if you get a letter or an email promising untold wealth, don't respond. By not responding you are helping put these scammers out of business."

The Commerce Commission and Ministry of Consumer Affairs recommend the following protection against such schemes:

* Never enter into investment schemes without receiving independent financial advice from a reputable adviser. * Never take up offers from strangers. * In some cases, especially pyramid schemes, you even need to be wary of people you know. These scams run rife through family and cultural networks. * If you are in the least bit suspicious, check with the Commerce Commission, Ministry of Consumer Affairs or Securities Commission as to the authenticity of the scheme.

Consumers should always check www.scamwatch.org.nz to see if the scam is listed. If it is, consumers should delete the email or throw away the letter. If it's not listed, consumers can forward the email to scamwatch or send a copy of the letter to the Ministry of Consumer Affairs and the Commerce Commission.

If consumers are approached to participate in an investment scam they should contact the Securities Commission or check www.sec-com.govt.nz to see if the scam is listed.

Background

Consumer scams are crimes of dishonesty, such as forgery, counterfeiting, on-line deception, and theft, that target people who seek to purchase goods and services. Potential victims can be those who use computers and the internet, older people, people whose financial situation makes them interested in 'get rich quick schemes', and people who use mobile phones.

Key characteristics for consumers to look out for in identifying a scam include:

* it comes out of the blue
* it sounds like a quick and easy way to make money
* it tells you there is almost no effort or risk
* it asks you to give personal information such as your banking details, and
* it sounds just too good to be true.

As part of a trans-Tasman approach to combat consumer fraud and scams targeted at consumers, the Australasian Consumer Fraud Taskforce was established in March 2005 and comprises 18 government regulatory agencies and departments in Australia and New Zealand.

Agencies participating in the Taskforce are:

New Zealand Government: Commerce Commission; Ministry of Consumer Affairs.
Australian Government: Attorney General's Department; Australian Bureau of Statistics; Australian Communications and Media Authority; Australian Competition & Consumer Commission; Australian Federal Police (represented by the Australian High Tech Crime Centre; Australian Institute of Criminology; Australian Securities & Investment Commission; Department of Communications, Information Technology & the Arts

State and Territory Governments: Australian Capital Territory - Office of Fair Trading; Consumer Affairs Victoria; New South Wales - Office of Fair Trading; Northern Territory - Department of Justice; Queensland - Department of Tourism, Fair Trading and Wine Industry Development; South Australia - Office of Consumer & Business Affairs; Tasmania - Office of Consumer Affairs & Fair Trading; Western Australia - Department of Consumer & Employment Protection.

Consumers who think they've spotted a scam can get more information and report them on the Scamwatch website at www.scamwatch.org.nz

ENDS

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