Managed investments

Managed investments

Avoiding scams and illegal schemes

You will very quickly learn that there are factors common to all investment scams:

they don't have a prospectus or product disclosure document
they promise high returns
the investments are often based overseas or must be kept a "secret", presumably so other people don't find out about the offer and make a killing as well.

Ponzi schemes
The simplest, yet most effective scams perpetrated on unsuspecting investors for many years have been Ponzi schemes. The scheme only requires a few victims in its early stages to be successful. The promoter promises you a very high return on your investment and says it is secure.

Part of the money deposited by early investors, is then used to pay their first dividend cheques or interest. The victims are more than happy to get high dividends. The swindler continues paying them dividends for a couple of months until they are more comfortable with their investments, and decide to invest more. They then begin to urge their friends and relatives to invest as well. Soon, there is a steady flow of funds into the scheme, and the number of investors grows.

Provided the swindler is disciplined about how much money is left in the account to pay "dividends", the scam can go on for many years. Theoretically, if the scheme continues to draw in new investors, it could go on indefinitely. In practice they usually fall over because the promoter starts to spend the money too quickly, or the pool of investors starts to dry up.

Pyramid scheme

Scams and swindlers
See our Scams and swindlers page for stories about scams and rip-offs including a Ponzi scheme that saw 34 investors losing $6.5 million of their hard earned savings.

Pyramid investment schemes
These schemes operate in a similar way to pyramid selling schemes. One person "invests" some money in the scheme. The only way they can move up the scheme is if they introduce other people to "invest" in the scheme. There is never any real product into which the money is invested; all that happens is that the money flows up the pyramid.

Theoretically, the scheme will go on forever, and everyone who joins in will make money out of it, but in practice the only way for new investors to profit is if there are new recruits. Each new investor will find it more of a struggle to get new people to join the scheme and to make money. In Australia it is illegal to promote or participate in a pyramid investment scheme. More about pyramid schemes

3 tips on how to avoid scams
1 Find out how the investment works
Always take time to think about a proposal and make sure you know how it works. If you don't understand the information you are given, take it to an accountant or licensed adviser to discuss with them.

2 Always ask for the prospectus or product disclosure statement (PDS)
A prospectus or PDS will set out all the information you need to make an informed decision about an investment scheme. It will give you information about the financial position of the company or scheme and its future prospects.

Even small investment schemes need a prospectus | Guide to reading prospectuses
What's a product disclosure statement?

Avoiding scams and illegal schemes

3 Beware of investments offering high returns with "no risk"
They are usually the worst risk of all. A high return is as little as 2% higher than the return offered by established companies offering similar types of products. Higher returns mean a higher risk that you may lose money.

What are managed investment schemes

More information

Illegal managed investment schemes - among Australia's worst investments

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Illegal managed investment schemes - among Australia's worst investments

Illegal managed investment schemes are among Australia's worst investments.

Nurses, retired people, professionals, church groups, ethnic communities and even police have lost hundreds of millions of dollars over the past ten years by investing in these schemes. Use our safety checks to avoid them.

What's a managed investment scheme?

In a managed investment scheme:

Your money and other members' contributions are pooled together or used in a common enterprise to produce financial benefits for scheme members.
You and other members give up day-to-day control over the operation of the scheme to someone else.

A great many investment opportunities are structured as managed investment schemes. The most common managed investments schemes include:

cash management trusts
property trusts
equity (share) trusts
agricultural investment schemes (for example, pine trees, olives, flowers or fish farming).

More unusual types of investments can also be structured as managed investment schemes, for example:

betting schemes
some lottery syndicates
small property syndicates
timeshare schemes and
managed mortgage schemes.

What's an illegal scheme?

Generally, it's illegal to offer interests in a managed investment scheme unless the scheme is registered with ASIC.
Some exceptions exist:

when all offers are made to wholesale investors
offers in some schemes which have fewer than 20 members.

If you are offered one of these special exceptions , make certain you really understand it inside out, and that it's suitable for you. Otherwise, stick to registered schemes and take advantage of the protections of the Corporations Act.

Who starts illegal schemes?

Some illegal schemes are started by well meaning but incompetent people who don't know the law and have no idea what they are getting into. They get a bright idea to make money, but they have none of the skills and systems to manage other people's money efficiently, honestly and fairly.

Other illegal schemes are started by shady and dishonest people who set out to cheat you. They operate outside the law because it's much easier to cheat you when they don't have to follow any rules.

Safety checks for managed investment schemes

Help yourself avoid Australia's worst investments by doing 3 basic safety checks before investing any of your money.

Use information that's available free of charge on ASIC's databases to make sure any scheme you're interested in is playing by the rules.

What a registered managed investment scheme must do	What you can do
1 A registered managed investment scheme must set up a public company that is registered with ASIC on our public database of Australia's 1.2 million companies.	1 You can check if the company: exists by searching our National Names Index, and has Ltd after its name, not Pty Ltd.
*What it means for the scheme* A public company must: prepare financial statements, have them audited by a registered company auditor, and lodge those financial statements with ASIC so that anyone can purchase a copy.	*What it means for you* You can obtain the company's audited financial statements for a fee.
2 A registered managed investment scheme must get a licence in the company's name to '"operate" the scheme.	2 You can check if the company holds a licence by searching our register of Australian financial services licensees
*What it means for the scheme* Every scheme operator is also on our public database of Australia's 2250 dealers. Scheme operators (sometimes called "managers") must set up systems to run their scheme efficiently, honestly and fairly. For example, the managers will have to: receive and account for investors' money, invest funds and check performance, distribute profits, and return cash to investors if they wish to sell their units.	*What it means for you* A licence means the scheme operators must carry professional insurance and have systems to deal with investor complaints if anything goes wrong.
3 A registered managed investment scheme must be registered with ASIC as a 'managed investment scheme'.	3 Check if the scheme is registered by searching our free national names index.
*What it means for the scheme* Once again, every registered scheme is on our public database. Registering each scheme means ASIC can check that the manager operates only the kinds of schemes permitted under their licence.	*What it means for you* If it's not registered, it may be an illegal scheme – and you will lose important legal protection. If it's one of the special exceptions , make certain you really understand it inside out, and that it's suitable for you.

More about managed investment schemes
List of illegal investment schemes

Think carefully about taking up any offer you receive by email. It can be difficult to recover your money if you are not satisfied with the product or service you receive.
If you receive spam that advertises or promotes content that you believe may be offensive or illegal, you can complain to the Australian Communications and Media Authority about that content. Information about making a complaint, including an online complaint form, is available at the ACMA website.

National Scams

The ACCC is the only national agency dealing with general consumer protection and restrictive trade practices matters. The Infocentre is the primary contact point of the ACCC. If appropriate, information received is passed on to investigators. Callers can also be provided with information by the Infocentre on their rights and responsibilities as businesses or consumers.

Australian Competition and Consumer Commission
Infocentre 1300 302 502
www.accc.gov.au
Report a scam to the ACCC

Financial Scams

Financial scams are scams that involve sales offers or promotions about financial products and services such as superannuation, managed funds, financial advice, insurance, credit or deposit accounts. Report financial scams to:

Australian Securities and Investments Commission
1300 300 630

You can get more information and report financial scams on ASIC's consumer website, Fido

If you want to ask a question

Contact our Infoline by email infoline@asic.gov.au or phone 1300 300 630 (International, call +613 5177 3777) for:

general enquiries about what ASIC does and our services
queries about financial services or products, or
copies of our booklets and brochures.

Your privacy | About the information we give you

If you have a complaint about a financial product or service or a company

Read our information on how to complain.

If you want to tell us about a scam

You can lodge a formal complaint with ASIC. Some scams use the language of "financial investments", but they are outside ASIC's responsibilities because they involve sales offers for non-financial consumer goods and services. Examples of these are "Nigerian" scams, lottery scams and pyramid marketing schemes. These are regulated by the ACCC and State Government consumer bodies. Read Schemes outside ASIC's powers before sending us your complaint. Here's how to complain to ASIC.

If you know about an outrageous, far-fetched or unbelievable scam involving investment, investment advice, insurance, superannuation, credit or deposit taking (but not 'Nigerian letter' scams - these are outside our area of responsibility), we'd like to hear from you. Email a brief summary (about 100 words or less) about the scam to pieinthesky@asic.gov.au. You can be in the running for the Pie In The Sky Awards.

Visit www.scamwatch.gov.au for a list of Taskforce partners.

If you think you've spotted a scam go to the ScamWatch website at www.scamwatch.gov.au which has information about scams and a number for reporting scams in Australia: 1300 795 995.