It's a slick, sophisticated way of parting you from your assets. The easy prey will be the greedy, the naive or the desperate. But Fools won't fall for it, will they?
Stock scams are becoming more widespread and more inventive in their presentation. As a result, the FSA (impotent though it may be to stop them) is now issuing warnings to UK investors.
I've little sympathy for either the greedy or the naive. Anyone who thinks there's a short-cut to instant riches deserves to be conned. As does anyone who's prepared to swallow improbable fiction from a self-styled and unlicensed broker. If something sounds too good to be true, it is.
I am sorry for certain desperate people: those in or near retirement and fearful that the nest-egg isn't sufficient. There have been too many cases where the fraudsters' spiel has left them even worse off.
If you've already got equity holdings, you're more likely to be a target. Why? It suggests you're comfortable with the idea of buying shares -- and thus wouldn't be averse to further direct investments.
This is how it works....
One day, a "broker" contacts you. He praises your perspicacity in stock-picking. He offers you a bargain not to be missed. The rest of the story will be a variant on the following:
He's got inside information that XYZ is about to announce a major breakthrough (in pharmaceuticals/life sciences/genomics/whatever). When the news hits the markets, XYZ's stock is set to soar through the roof. It's your chance to get in on the ground floor. An opportunity which only a shrewd investor such as yourself will recognise.
Once, it was only expatriates that fell foul of such con tricks.
Enter globalization....
Today, many cross-border investments are quite legitimate. EU-licensed funds and insurance products are marketed throughout the Community. UK investors are free to trade on US and EU stockmarkets (and vice versa).
That doesn't mean all cross-border financial transactions are above-board!
The Internet is the ultimate borderless medium. The free flow of knowledge and products can be enriching. The downside is that the 'Net is an unregulated arena. Out there, it's every Fool for him/herself.
That's bad news for anyone reared in a nanny culture. By that, I mean folks who think they can leap in without looking -- then later cry "foul" and hope to be bailed out. In shark-infested waters, only the Foolish survive.
If the "broker" who contacts you is not UK-based, he's beyond the FSA's regulatory scope. If you succumb to the hype of a foreign 'Net site, or act on an e-mail from abroad, you have no recourse.
Stock scams have reaped millions for the instigators, who are rarely brought to book because they cover their tracks carefully.
They contact you by phone. The head office is in one country (it's simply a mail drop). The bank account is somewhere else (with lax regulation and impenetrable secrecy). They rarely tout publicly-quoted shares, preferring to invent their own, unlisted, companies.
Then there's the other classic global scam, nicknamed "Out of Africa" (it usually emanates from Nigeria or Kenya). It's ludicrously improbable, yet has taken many a sucker for an expensive ride.
The theme is this: you stand to make a 7-figure sum if you'll assist in a dubious transfer of funds. The explanations offered are many and varied: everything from circumventing exchange controls to a frank admission that the gains are ill-gotten.
Fall for that, and you'll be asked to pay certain costs -- trivial, of course, compared with the pay-out sum. Be assured that, having paid a few thousand dollars up front, you'll never see the promised millions.
There are no easy pickings. Stick to Foolish philosophy!
Footnote:
When I researched this article, I'd never had an "Out of Africa" approach. I've since received three (from Nigeria, Togo and Ivory Coast), all via my Fool e-mail address. It could be coming to you, soon....
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