The 'Invest in a start-up' scam

by Tony Levene on 09 November 2011  |  5 comments
Tweet

Tony Levene might be rubbish at Geography, but he's not going to fall for this scam.

Geography has never been my strong subject. At school, my attempts to draw freehand maps of the British Isles (a requirement at the time for some reason) were shown to the class with cries of derision and threats of a caning by the sadistic geography master. So I must admit I would hard pressed to find the Seychelles on a map.

I would be even more hard pressed to come up with any reason why I would want to invest substantial sums via a firm based in the Seychelles. The islands may be idyllic but it is not one of the financial capitals of the world – that much I do know.

But a few days ago, I received a call from Michael. He apologised for being out of contact recently while insisting I should really remember the last time he phoned. I couldn't. So he reminded me it was in January.

On cue, I mumbled some apology although I still had no idea what he was talking about or for whom he worked.

He first went through the usual “how are your investments doing? Are you interested in growth or income?” and “in these difficult times, wouldn't you like a safe, secure investment that will gain 20% or more in three to four months?” (Remember: it does not matter how you answer – the caller is only interested in holding your attention, hoping you don't hang up.)

Then he confirmed my email address, promising to send me material that would make me wealthy.

Sailing boats in the Seychelles

Two days later, an email from someone called Paul in Equity Sales arrived. By his phone number, Paul worked in Zurich.

There were two attachments. One was a 28 page long “business plan” for RAK International Inc. This appears to be a perfectly legitimate start-up company which has come up with one of those documents new companies show to bank managers and others to get finance.

RAK intends opening boat repair yards in Honolulu and New Brunswick, Canada, aiming apparently at the higher end of the market, providing all sorts of work including a mobile service – useful if your yacht loses power or radio contact in some distant port.

But as it has never traded, all the figures are projections based on the number of boats it expects to service, the total likely turnover and the potential profits. Forecast sales are broken down to show possible earnings after items such a labour costs, parts, rent – even the expense of phone and internet. This is all normal – I would do the same if I had a start-up concept.

Now there is nothing wrong investing in companies on day one – someone backed Apple and Microsoft when they were just a twinkles in their founders' eyes.

But those investors presumably met Steve Jobs or Bill Gates in their garages or back bedrooms. I am not offered that facility.

So what has all this to do with the Swiss phone caller? Or the Seychelles?

I can't see the connection between Swiss person Paul and Seychelles-based Michael and a yacht repair company in Canada and Hawaii.

Should I sign on the dotted line?

Maybe I'm as bad at understanding finance as I am at geography. For Paul has sent a second attachment. It's a stock purchase agreement, already made out in my name saying I shall own 2,100 shares at a cost of €5,980 once I arrangement a bank transfer. This tells me nothing – for unless you know how many shares are in issue, you can't work out what proportion of the company you own. It has a Frankfurt quote but that tells me nothing either.

The small print on the back of this agreement insists I sign to say I have not had any investment advice or “solicitation”. I am not sure how that squares with Michael's claim that I should buy because I will make 25 to 40% gains over the next three to four months.

If I had the €5,980, I think I would be better off using it to take a holiday in the Seychelles. It looks beautiful. I might even hitch a ride on a yacht.

Follow me on twitter @tonylevene1