Source: FMA
Can you spot the hallmarks of a fake product disclosure statement (PDS) or prospectus? The FMA is warning investors to be vigilant after seeing an increase in fake investment documents targeting New Zealand investors, an example of how scammers can tailor their approach.
The scammers are using the branding and imagery of well-known and reputable New Zealand and international financial institutions, such as banks and fund managers, to build credibility. The FMA issued a warning about an investment issued in the name of Blackrock Investment Management Australia Limited and AMP Capital and another warning about a phony Rabobank Sustainability Bond prospectus in November 2022.
The FMA has noted these fake documents mainly imitate PDSs for managed funds and are inconsistent with PDS legal requirements. The fake documents follow a similar format, as shown below.
Scam PDS format
A forward or statement in the name of the real Chief Executive of the business
A short and vague question and answer section about the investment, which usually makes promises about high returns and safety of the investment;
A Fund Holdings, Facts & Performance section
An Investment Timeframes, Returns and Securities/Protection section; and
A terms and conditions section, which again makes unreasonable promises and statements
Required PDS format for managed funds*
Key information summary
How does this investment work?
Description of your investment option(s)
What are the risks of investing?
What are the fees?
What taxes will you pay?
Who is involved? (this section includes details of the fund manager)
How to complain (this section includes details of the manager, supervisor or dispute resolution scheme)
Where can you find more information
How to apply
*NOTE: These sections are required by regulation for a managed fund PDS and must be headed up, ordered and numbered sequentially.
Other financial products, such as bonds and shares, have different PDS requirements to managed funds.
For more information view our Guide to Product Dislosure Statements page.
Remember scammers may improve and evolve their approach to be consistent with a legitimate PDS. Be sure to follow the advice on our 'Scam basics' page.
What makes a PDS scam dangerous?
Scams of this nature can be more convincing as they use the real details of a business - such as an image of its Chief Executive and its Financial Service Providers Register or Companies Office Register number.
Investors are asked to hand over large sums of money, often more than $50,000.
Instead of being cold called in the traditional sense, we understand investors have inadvertently navigated to a term deposit comparison website operated by the scammers. Investors are invited to enter their contact details and then receive a follow-up call or email from a scammer claiming to be from a legitimate firm. The scammer can be well-spoken and familiar with the legitimate firm's products and services.
The forecast returns can be within a reasonable range and can involve traditionally safer financial products (e.g. term deposits or bonds), unlike other scams that make 'get rich quick' promises to lure investors.
How to avoid being scammed
The simplest way to avoid this type of scam is to contact the legitimate provider directly and ask if a document is genuine. Navigate to the provider’s website by typing their name in a search engine and ensure you click on a trusted link (look for a green padlock next to the URL) or ring their phone number. Do not use the contact details provided to you in the document or accompanying documents, as these could be fake.
Investors can also check that a PDS or prospectus is available on a provider’s website or and - if it is a managed fund for retail investors - on the Sorted Smart Investor tool.
Carefully check the bank account you are being asked to deposit funds into. Be wary if it’s an offshore account as most legitimate providers will have New Zealand bank accounts and ensure the name of the account is consistent with the provider's name.
If you are still not sure, seek financial advice from a financial adviser before investing.
Red flags
Familliarise yourself with examples of sophisticated and sometimes subtle red flags listed below.
Despite these documents being more sophisticated than other types of scams, some of the usual red flags are still present:
Investment has no risk
Scammers often use terms such as “fixed” income or returns and “no risk of capital loss” to make the scheme more attractive.
Investment is protected or guaranteed
Scammers might say the investment is protected or guaranteed by the Government or Financial Markets Authority, and misappropriate logos or branding. The FMA never guarantees any investment.
Vague, unsubstantiated or poorly worded statements
A genuine PDS uses clear language to explain the product and only contains essential information to help you decide whether to invest. Scammers might use vague, unsubstantiated, or irrelevant statements to make their scheme more attractive. A fake PDS might also contain poor grammar or spelling mistakes.
Unreasonably low or zero fees
Unreasonably low or zero fees are another method used by scammers to make the scheme more appealing. This doesn’t always mean it’s a scam, but it should raise questions.
Being contacted in unorthdox ways
The FMA understands New Zealanders have been contacted by scammers after entering their contact details into a website operated by the scammers. Scammers will then follow up by calling or emailing. Other investors have been cold-called, another typical sign of a scam.
Scammers may use the names of genuine staff from providers, usually sourcing identities from LinkedIn. When direct email contact is established by the scammers, this will be from a non-genuine email domain.