26 May 2021
The Securities and Futures Commission has recently concluded an online campaign alerting the public about the use of online platforms to defraud investors.
Online investment scams typically target retail investors with an interest in stock trading and other investments such as cryptocurrency.
A common form of share investment scam is the ramp-and-dump scam. A ramp-and-dump scam is a form of stock market manipulation whereby the fraudsters would use different means to “ramp” up the share price of a listed company and lure investors to buy shares at an artificially high price. The fraudsters would “dump” the shares to other investors for a profit. Such schemes can result in the collapse of a listed company’s share price.
Other forms of investment scam may even involve investments in shares of a non-existent company or IPO.
To induce unsuspecting investors to invest in the shares, fraudsters or their accomplices typically work patiently to establish a relationship of trust through frequent contacts and communication on social media, telephone calls and/or email. Once the trust is in place, the fraudsters may claim that they have inside information about shares in a company and use the promise of guaranteed profit to induce the investors to part with their money. In certain cases, fraudsters may impersonate well-known investment advisors or claim to be a licensed or registered corporation to instil confidence in the investors. Some fraudsters may also set up real-looking websites for their enterprise.
Investors should be wary when offered unsolicited “inside information” or “investment tips” online, in particular, shares in listed companies with small market capitalisation, low market liquidity and high shareholding concentration. The key is to stay vigilant and not to trust so blindly.
There are many ways to ascertain and verify the identity of the counter-party on the other end of the deal. Here are some ways to avoid falling victim to investment scams:-
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Check the Anti-Deception Coordination Center (ADDC) for the latest investment scam information and alerts.
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Verify the identity of the corporation that you are allegedly investing in by conducting a search through the Hong Kong Companies Registry Cyber Search Centre (for private companies) and HKExnews maintained and run by the Hong Kong Stock Exchange (for listed companies).
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For on-going IPO submissions, verify its status by visiting the “New Listing” section on the HKExnews website.
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For persons and corporations claiming that they are “licensed” or “registered” in Hong Kong for securities related regulated activities, conduct a search on the public register maintained by the SFC.
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For corporations engaging in sizeable deals and transactions, consider obtaining a due-diligence report from a law firm.
Contact us today if you have been the victim of financial fraud, or need assistance in verifying an investment counter-party or help with due-diligence.
For further information, please contact:
Charing Yu, Hauzen LLP
info@hauzen.hk
