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According to South Australia police, Australians lose more money to investment scams than any other type of scam, with over $190 million lost in 2024.
These scams are not always obvious and can be hard to spot. Most scammers impersonate real firms and may even have legitimate-looking documents and websites to bolster their credibility.
But they almost always offer a deal that’s too good to be true and often use pressure tactics to convince their victims to send money quickly. Knowing the most common scams in private equity can help you identify them more easily.
6 Common Private Equity Scams
1. Fake private equity firms
These are difficult to detect because they appear real in almost every aspect. They’ll have a polished website complete with testimonials, financial documents, and an active LinkedIn profile. In some cases, they can go so far as to have an actual physical address to further build credibility.
They either present themselves as a legitimate firm or they impersonate a well-known brand.
Once you put your money in, you may get some initial documents and occasional updates. But after some time, communication stops, and the firm is nowhere to be found.
2. Ponzi schemes
Some scammers operate for a while to try and get as much money as possible from victims. Some early investors might even get the promised returns, which encourages them to put more money in and perhaps convince their friends and family to invest as well. This is called a Ponzi scheme.
After several months or a couple of years of collecting money from investors, the firm suddenly vanishes.
3. Advanced fee fraud
Watch out for anyone asking you to send an upfront fee in return for access to a high-return investment. They’ll usually say the fee is to cover due diligence, administrative costs, or processing charges.
Sometimes, they might get you to send multiple upfront payments, each time promising that it’s the final step, but always finding another reason for you to send more money. After collecting fees from investors, they disappear.
4. Fabricated performance and due diligence reports
To appear legitimate, investment scammers will often fabricate legal and financial documentation. They may have fake performance reports showing an impressive track record, made-up financial statements, and forged regulatory registrations and licenses.
So even when you’re careful to conduct due diligence, you may not realise you’re dealing with a scammer.
5. Exclusive access and insider deal scams
Private equity investment opportunities usually have limited access. Scammers take advantage of this by promising investors access to insider deals and exclusive opportunities, such as pre-IPO shares or access to highly restricted funds.
They’ll claim to be a broker, a connected insider, or a fund manager. They might name-drop a big investor or institution that’s supposedly involved in the deal.
It’s also common for scammers to create urgency in an attempt to pressure you into a deal. They’ll say something like, “the round is closing in 48 hours” or “we only have slots for 2 more investors”.
6. Crypto-linked private equity scams
Because many people still don’t fully understand crypto, it’s become a popular target for scammers. They take advantage of its technical complexity to push deals that promise high returns.
They’ll throw around terms like tokenised funds, crypto hedge funds, and private initial coin offerings (ICO). While there are legitimate crypto funds and deals in private equity, the technical barrier makes it hard for even sophisticated investors to differentiate between what’s real and what’s fake.
They might ask for a single large investment or keep asking for multiple investments while promising big payouts. Eventually, they go silent and disappear.
How to Avoid Private Equity Scams
No one is immune to investment scams, but you can minimise the risk of being a victim with these tips:
- Check whether the business, company, or website is listed on the investor alert list, which has names of known investment scammers in Australia. Also, check the IOSCO list for scammers from other countries. The SEC also has a list of impersonating and unregistered entities in the US.
- Verify that any investment or financial professional who approaches you is registered with ASIC.
- Check that the person or firm actually exists. Look up their address, contact details, and any other identifying information. If the person says they work at a particular organisation, contact the organisation directly to confirm.
- See what you can find about them online. You’d be surprised at how much you can find out online, including contact details, social media profiles, and past complaints or scam alerts.
- Watch out for red flags that usually indicate a scam: promises of high returns with low risk, pressure to send money quickly, demands for upfront payments, promises of insider access or information, vague details, and fake celebrity endorsements.
If you suspect you’re being scammed, cut all communication immediately, don’t send any money, and report any suspicious activity to Scamwatch or ASIC.
If It’s Too Good, It’s Probably a Scam
To sum it up, do your own research and trust your gut. If a deal sounds too good (high returns, minimal risk), it’s likely a scam.
At PSA Capital Investments, we operate on transparency and honesty. We make sure investors know what risks they face and what we do to mitigate those risks and protect their capital.
If you’re looking for a safe private credit investment with a proven track record of stable returns, give us a call on (03) 9847 7689.
Disclaimer: The information contained in this document is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs.
