Superannuation scams – Scammers who want your super

An offer to help you get your superannuation money early might seem like a great idea. But if you agree to it you could end up in a lot of trouble. Accessing your super before age 55 (at the earliest) is illegal except in very limited circumstances.

Here we explain how super scams operate so you can protect your retirement savings.

How super scams operate

The scammers say they can withdraw your super or move it to a self-managed super fund (SMSF) so you can pay off your debts or use the money for something you really want.

Once your super has been withdrawn or transferred, the scammer then takes a large commission or may even steal the entire amount for themselves.

By agreeing to the scam, you risk losing your hard-earned super savings. You may also unintentionally get caught up in tax penalties as a result of taking your super early. The scammers may even get you to sign false statements, exposing you to fines.

To find out more about when you can get hold of your super money, see our page on getting your super.

There is another type of super scam where scammers steal your identity and pretend to be you so they can transfer your super to a fake SMSF that they can access. Read more about how to protect yourself from this scam on the identity fraud webpage.

Who the scammers target

Promoters of illegal super scams often target people who are struggling with debt, people who are unemployed and those from non-English speaking backgrounds.

Case study: Kim’s super is taken by a scammer

Distressed Woman With Hand On HeadKim was desperate to pay off her car loan and credit card debt. She had $30,000 in her super fund and really wanted to use that money now, not in years to come. She saw an ad in her local paper saying she could get hold of her superannuation money now and phoned the number.

Greg answered her call and said all she needed to do was sign some papers to transfer the money into his self-managed super fund. Then Greg could give Kim 90% of the $30,000 and he would only take 10% commission. Kim thought this was a great idea so she signed the papers.

A few weeks later, Kim had still not received the $27,000 from Greg. She thought this was strange but believed the money would come soon. Then she got a call from the Australian Taxation Office letting her know she was up for a big tax bill as she had accessed her super.

She also got a call from an ASIC investigator who had received complaints from other people in Greg’s self-managed super fund who had not received any of their money. The investigator told Kim it was illegal to get hold of super funds before retirement and she was questioned about her dealings with Greg.

The investigator sent her the real bank statements from Greg’s fund. Greg had withdrawn all her money and there was nothing left.

The truth was that Greg had a gambling problem and ran the scam to fund it. Greg was already bankrupt, so there wasn’t much hope that Kim would get her money back.

Warning signs of a super scam

Promoters of illegal super schemes will try to get you to believe that anyone can access their super with their help.

Be alert to these signs of a super scam:

  • Advertisements promoting early access to super
  • Offers to ‘take control’ of your super
  • Offers of quick and easy ways to access or ‘unlock’ super
  • Unlicensed operators – see ASIC Connect’s Professional Registers or APRA’s Disqualification Register.

If you have been approached about accessing your super early, report it to ASIC via the online complaint form or by calling ASIC’s Infoline on 1300 300 630. You can also report it to the Australian Taxation Office by phoning 13 10 20.

Action ASIC has taken action against super scams

To find out more about the actions ASIC has taken over early release super schemes, see the following media releases:

When early release of super is legal

Early release of super is legal only in very limited circumstances: when you are experiencing financial hardship or on ‘compassionate grounds’. For more information, contact your adviser at Tailored Lifetime Solutions.

Ponzi Schemes – Dividends but no real investment

One of the simplest yet most effective investment scams is the ponzi scheme. The promoter promises investors a return on investment and says it is secure, but there is no real ‘investment’.

The promoter convinces people to invest with their scheme. They then use the money deposited by early investors to pay the first ‘dividend’ until investors feel comfortable and decide to invest more. Some investors then encourage their family and friends to join. Eventually the scheme falls apart because the promoter starts to spend the money too quickly or the pool of investors dries up.

Here are tips on how to pick a ponzi scheme from a real investment.

Warning signs of a ponzi scheme

  • The rate of return is sometimes suspiciously high (maybe as high as 10% per month or 120% per year)  – but it can also be just the usual rate of return
  • The person who tries to recruit you is someone you think is trustworthy, like a neighbour or someone in your church or community group
  • The recruiter may have already invested in the scheme and received great dividends

Read ASIC’s media releases about the conviction of ponzi operator Chartwell Enterprises, and a penalty and ban issued to ponzi ‘mastermind’ David Hobbs.

Case study: Maria invests through a friend

Couple On Park BenchFirst-time investors Maria and Jason borrowed $70,000 to invest in the overseas money market after a recommendation by their friend of 40 years, Steve.

Steve told them their investment would involve no risk at all, as it was guaranteed by the Bank of America. He said they could withdraw their capital at any time after the first 12 months. The return promised on the investment was fantastic (26% per year on their initial investment). Steve helped the couple arrange to borrow the $70,000 they would invest.

But the scheme was not real – they were caught up in a ponzi scheme. Part of the money they and other early investors deposited was used to pay their first dividend cheques. When the money for dividends dried up, Steve said that it was due to the interference of ASIC. This was one of many false stories fed to the investors by Steve, to keep them onside.

Jason and Maria were angry with ASIC as they thought the organisation was ruining their chances of making money from their investment. They wanted to believe Steve, as they didn’t want to think they had lost all their money, and he was an old friend.

When the truth eventually came out that the scheme wasn’t real, Maria and Jason, along with the other investors, assisted ASIC’s investigation and prosecution of Steve and his business partner — who spent more than 2 years in jail.

Maria and Jason lost their $70,000 and ended up having to pay off the loan. When Jason’s mother died, his inheritance was completely swallowed up by the $70,000 debt plus interest.

Jason and Maria are now very wary, and warn others to get a second opinion from a licensed financial adviser before investing in anything.

This is a true story – only the names of the investors have been changed at their request.

Where do ponzi schemes operate?

Operators of unlawful investment schemes sometimes target community groups, like churches, to find victims. In some cases, members of the community group innocently encourage others to put money into the illegal scheme.

This means that when the scheme collapses, not only do the investors lose their money, but relationships break down between friends, neighbours or community group members.

Ponzi schemes targeting Thai communities

ASIC Victorian Regional Commissioner Warren Day talks to SBS about how members of the Australian Thai community are falling victim to Ponzi scams operated through Facebook.

Warren Day interview on SBS (23 mins)

How long can the scheme last?

If the promoter of the scheme is disciplined about how much money is left in the account to pay ‘dividends’, the scam can go on for many years. Ponzi schemes only require a few people in their early stages to be successful.

How ponzi schemes work

An example of how a ponzi scheme works is shown in the table below. In January, the promoter convinces Katie to invest $100,000 in his scheme. The promoter then pays Katie $10,000 each month using Katie’s own money.

As Katie receives $10,000 each month she doesn’t suspect anything is wrong, and happily recruits friends and work colleagues to invest, too. After 3 months, Katie’s neighbour Adam decides to invest $100,000 after hearing about Katie’s great returns.

After both Katie and Adam have invested their savings, the returns continue to come in April. But in May they don’t hear anything from the promoter. They try to contact him but his number has been disconnected.

The promoter has taken off leaving two devastated people in his wake. Katie lost $70,000 and Adam lost $90,000. The promoter got $160,000 out of the scheme.

This is example has only two victims but in reality these schemes can have dozens or even hundreds of victims.

Katie and Adam invest in a ponzi scheme

Month Katie Adam
January Invests $100,000
February $10,000 returned
March $10,000 returned Invests $100,000
April $10,000 returned $10,000 returned
May No contact No contact

The power of a Ponzi scheme

In this episode we take you behind the scenes of a Ponzi scheme where unbelievably good returns are offered to investors, the scheme operator seems to be trustworthy – but it’s all smoke and mirrors.
ASIC investigators Kaan Finney and David McArthur explain how Ponzi schemes work, how operators attract investors, how ASIC investigates and shuts down these schemes and most importantly, how can you can avoid getting caught up in a scheme.

transcript

What to do if you have invested in a ponzi scheme

  1. Stop investing any more money
  2. Check if the company is on our list of companies you should not deal with
  3. Check the company’s licence number on ASIC Connect’s Professional Registers.
  4. Report the scam to ASIC

ASIC may be able to prosecute the ponzi scheme operators if they are operating in Australia. ASIC may also be able to issue an alert about the scheme. You should also warn your family and friends, to stop them from becoming victims.

The biggest telltale sign of a ponzi scheme is the suspiciously high rate of return. That old saying applies here: if it sounds too good to be true, it probably is.

Before you invest in any scheme, do independent checks to see how the returns are really going to be made. Don’t just trust the word of the person selling you the scheme.

 

Reprodued from ASIC Moneysmart website