New Zealand says mind the “big win scams!” FX Ponzi schemes on regulatory radar

For quite some time, New Zealand has been widely regarded within the FX industry as a region with very rudimentary regulatory oversight, leading to the presence of a large number of overseas, often Far Eastern, firms having listed in the region.

Since the beginning of last year and the establishment of the New Zealand Financial Markets Authority (FMA), however, many of such entities were shown the door and New Zealand is rapidly transforming itself from its standing as a region from which small, often disreputable companies could operate, into a nation whose financial markets regulatory structure aspires to emulating the highly organized nature of neighboring Australia.

Today, in order to further this, the FMA has issed a warning to potential investors regarding what it considers to be FX schemes which are operated by overseas firms and promise unrealistic returns, supposedly gained by the use of dubious software.

The FMA has been actively involved in putting a stop to nefarious conduct of this nature on its own soil, highlighted by last year’s bankruptcy of Phoenix Forex and its OakFX trading software. In that particular case, the OakFX system was sold to retail traders, particularly senior citizens, promising unrealistically high returns.

Ultimately clients were bilked out of up to $25,000 each to buy the software, which then amounted to very little or no return on investment for clients. Just three months after the FMA warning was issued in August, Phoenix Forex went belly-up, owing over $2 million to its creditors, comprised of $1.44 million to the New Zealand tax office, and $448,774 to clients, with trade creditors still awaiting their $124,148.

Phoenix Forex and Phoenix Group Ventures are directed by Kendall Twidgen, who is in her mid-twenties. Last year when the FMA issued its warning about OakFX she was travelling overseas with twice-bankrupted businesssman Mark Brewer, who was employed at Phoenix Forex as a senior salesperson.

Whilst this is an example of exactly the conduct which the FMA wishes to eradicate, the regulatory authority remains concerned about the exact same tactics against clients, but perpetrated by companies overseas.

The FMA’s Director of Compliance, Elaine Campbell, said today’s warning is targeted at cold-calling ‘big win’ scams, most often from overseas or unknown locations. “There are some tell-tale signs to beware of that should cause consumers to take extra caution.”

Such signs that customers should pay attention to include requests to transfer funds overseas quickly to the account of a firm or person, claims that potential clients must ‘act now or miss out’, as well as urgent requests to invest immediately to enjoy a big payoff.

Other caveates include sales tactics such as discouraging or prohibiting customers from seeking independent professional advice about the product, service, or transaction, as well as offers involving software or so-called “trading systems” – often for forex trading – where consumers must buy a license or software, in order to participate rather in a similar vein to Phoenix Forex’s OakFX system.

Ms Campbell continued “There’s one principle to keep in mind: if an offer sounds too good to be true, then it probably is. Our advice is simple. Don’t transfer funds offshore to firms, or people, making offers like this – hang up the phone. If you don’t understand an investment or product, don’t put your money in.”

“Transferring funds offshore – especially to firms that you don’t recognise or can’t fully verify – adds unnecessary risk for consumers. Generally, the FMA cannot help consumers to recover funds once they have transferred sums offshore.“

The FMA is aware of firms providing fake website URLs that appear to be for a big-brand firm, a practice which appears to have become apparent across many jurisdictions with the British Financial Conduct Authority (FCA) also maintaining a sharp watch over what it considers to be ‘clone firms’ and regularly reporting such things.

As far as dubious trading systems are concerned, New Zealand’s FMA may well be one of the most recently founded regulators, presiding over a nation with much less presence in worldwide financial markets, however it has taken a serious perspective on this matter, which many other regulators do not consider to be part of their remit.

Several self-employed, self-styled vendors of trading software aimed at retail FX traders are present in North America, Great Britain and South Africa, among other prominent regions. Often, such entities are small businesses, run by individuals making claims to have been senior FX traders at major banks, yet with no record, no qualifications and no proof of professional career. A common practice among such entities is to sell trading software for several thousand dollars during training sessions, which are also chargeable, at specific training centers in major cities in Canada, United Kingdom or South Africa.

Often, the trainer and software vendor will use a demo account during seminars or training sessions to show delegates the alleged performance of the software and trading strategies, meanwhile setting up as an introducing broker of an unregulated market maker and then placing the delegates with that broker to use the software in order to claim profit/loss IB commission once the delegate loses the initial deposit whilst ‘learning’ how to use the software.

A regulatory loophole exists in many jurisdictions on this matter, as FX trainers software vendors do not need to be regulated, as they are neither providing financial advice nor brokerage services – purely training and their own viewpoint. Such exemption means that the conduct of such entities and individuals is often less than savory, yet omnipresent and legal.

The FMA publishes names of firms and people where it has identified an entity or a person who is operating without registration or authorisation in New Zealand, or where the firm or person is not complying with New Zealand’s financial services law.

There is also a similar international list on FMA’s website provided by the International Organisation of Securities Commissions (IOSCO). However, even where names or firms of cold-callers do not appear on these lists, consumers should not assume they are operating legitimately.

Ms Campbell has stated that checking whether firms are licensed or regulated in other countries could help consumers verify that such a firm exists. “But the fact that a firm is licensed or registered is not a guarantee for your money,” she said.

Ms Campbell said consumers could use resources provided by the FMA and Consumer Affairs New Zealand that are designed to alert people to common characteristics of dubious offers.

“Consumers don’t need to be drawn into these dubious offers. They can participate in well-regulated, genuine offers made by firms operating in New Zealand. There is plenty of choice in investment and financial services products that are provided by reliable firms and professionals.

“Genuine financial products and services offer consumers the protection of New Zealand law. All financial services products and securities contain some element of risk, so it’s a good idea to seek some professional advice.”

For the full announcement from the New Zealand FMA, click here.

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