The SC's warning follows several complaints from investors, mainly from Australia and New Zealand, who have incurred losses after investing in stocks through cold callers, which are usually based in different countries from the victims. These investors had been lured into investing in the shares of foreign companies, either listed on foreign stock exchanges, such as NASDAQ, or unlisted. The SC urges the public to be cautious or risk becoming victims of these international share scams.
How to identify a cold-calling share scam
Members of the public may identify these cold-calling share scams by looking out for the following features:
- Potential investors are most often contacted by telephone. They may also be contacted by mail, e-mail or fax. These communications are unsolicited, and the investor often has no idea how the cold-calling company obtained his contact information.
- The cold caller may or may not provide his name or details of his company. Where details are provided, the address of the cold-calling company would usually be in a foreign country. Hence, potential investors would have difficulty checking the physical existence of the company. Often, the address or telephone number given is that of a "virtual-office provider" which acts as a conduit for the company, which can be located anywhere in the world.
- Potential investors would be offered shares in companies which are listed on a foreign exchange. From the information provided to the SC, the exchanges quoted are usually NASDAQ-listed securities or unlisted securities quoted on the over-the-counter (OTC) market. The shares offered to potential investors may actually exist on these exchanges/markets. Thus, if the investor were to check the name of the company via any price-quotation service or the Internet, he would find a quotation of the company's stock price.
- The cold-calling company would usually try to entice potential investors by offering the shares at a discount to its quoted market price. The potential investor is usually told that he can "make a profit straight away".
- The cold-caller is usually very pleasant with the potential investor during the introductory telephone call. If the potential investor declines to invest, the cold caller would persist and continue calling, and the pressure for the potential investor to accept would gradually mount. In many cases, cold callers adopt aggressive sales tactics.
- Upon agreeing to purchase the shares, the potential investor would be instructed to wire payment (telegraphic transfer) to an offshore or foreign bank account.
- After payment has been made, the investor would face difficulty in getting his share certificates, despite numerous enquiries. Sometimes, the cold-calling company would indicate that the share certificates were being held for "safe-keeping". In either case, the investor would find it difficult to realise the cash value of his shares.
- In some cases, the investor would receive share certificates, but would realise that the purchased shares are not ordinary shares but instead restricted shares, which normally contain restrictions on sale or transfer.
What to do if approached by a cold-caller
Members of the public are advised to take the following actions when approached by a cold caller:
- Note down the name and business address of the cold caller. Check it against the list of dealers licensed by the SC under the Securities Industry Act 1983. A list of licensed intermediary companies is available on the official SC website at www.sc.com.my. If in doubt, contact the SC.
- If the caller says that it he/she is a broker dealer or investment adviser licensed by an authority abroad, ask for the name of the foreign regulator by whom it is licensed. Investors may ascertain whether the statement is true by calling the foreign regulator. Most financial sector regulators also have websites which would have a list of licensed or registered persons. It should be noted that all persons conducting dealings in securities in Malaysia are required to be licensed by SC, unless specifically exempted by law. This includes the provision of investment advice services as well as the carrying out of activities to effect the sale and purchase of shares such as the taking of orders or inducing a person to enter into such transactions. The SC strongly advises potential investors not to remit any monies to a broker/dealer whom he suspects is unlicensed.
- Check whether the shares and share price quoted are valid, although in many instances cold callers would quote actual shares listed or quoted on a foreign exchange.
- Request for further information on the company to be invested in such as its annual reports, prospectuses and financial statements.
- If members of the public come across the above tactics or are suspicious of the caller's credentials as an investment adviser or broker dealer, it is advisable to hang up the telephone and cease contact with the cold caller upon obtaining the necessary lead information as suggested above.
Members of the public in Malaysia or abroad may contact the
SC's Complaints Unit at tel: 603-6204 8999 (e-mail: [email protected]). For assistance on the contact details of foreign regulators or on lodging a complaint with these regulators, the public may contact the
SC's International Affairs Department (tel: 603-6204 8516/e-mail: [email protected]).
Following internal enquiries and complaints from investors in Australia and New Zealand, the SC initiated investigations into three companies in Kuala Lumpur that were offering shares of foreign companies either unlisted or listed on foreign stock exchanges such as NASDAQ. These companies did not have a licence to carry out their activities and have since ceased their operations upon instruction from the SC. The SC is also working closely with foreign regulators in the region to eradicate such activities.
