Shortsightedness or naiveties often do not combine well with investing in financial markets. Despite, the easy access to so much readily available information displaying the caveats of dubious schemes, which retail investors can study in order to avoid their hard earned readies falling into the clutches of unscrupulous Ponzi scheme operators.

Unfortunately, there are still parties who get taken in, therefore the world’s regulatory authorities conduct research to preempt complaints from those who have fallen foul. The latest example of this, is today’s warning issued by the New Zealand FMA to the public about the potential risk of investing with Phoenix Forex, a company registered in Auckland, the nation’s largest city.

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Up Front Fees Spark Suspicion

The warning issued by the New Zealand FMA focuses particularly on what the regulator describes as a foreign exchange trading system being offered by Phoenix Forex Limited, and that the New Zealand FMA believes that Phoenix Forex’s claims about the level of returns made by its trading system are untrue, and that Phoenix Forex is misrepresenting the profitability of, and risks associated with its trading system.

The regulator goes on further to explain that investments promising unusually high returns are often not legitimate offers. Therefore, the New Zealand FMA urges caution by anyone considering dealing with Phoenix Forex.

Phoenix Forex is providing access to a foreign exchange trading system under the designation of Oak FX. Under this system, the investor opens an account with a third party broker and the investor’s account is traded for the investor using algorithmic trading software. Phoenix Forex undertakes extensive advertising, as well as making unsolicited cold-calls to potential investors. FMA understands Phoenix Forex requires investors to pay a substantial up-front fee of up to $25,700 to subscribe to the system.

The Rise Of The HYIP

Since the demise of Liberty Reserve earlier this year, and the onset of increasing stringency among regulators in the Asia- Pacific region, of which the New Zealand FMA is one example having evolved from having very little authority at all, to being a fully respected regulatory authority with legal jurisdiction over its registered entities, the perpetrators of nefarious activity have moved their activities away from purely laundering money, or concealing their true identity to operating High Yield Investment Programs (HYIPs) and other assorted Ponzi schemes.

In June this year, Forex Magnates reported that forex related HYIPs are usually based on some sort of magic trading strategy that can return world beating results and offers investors access to managed accounts. In our research of forex related Ponzi schemes, firms often posted fictional MetaTrader 4 reports on their websites showing the fraudulent gains. In addition, many of the firms providing these products create websites to resemble those of brokers and brandish some sort of license to add more ‘authority’ to their offering.

The scheme to which the New Zealand FMA’s warning refers to, appears to reflect this particular line of thinking in carrying high upfront costs and unusually high returns. In the New Zealand FMA’s experience, it is highly unlikely that this kind of investment can deliver such high returns.

Phoenix Forex has not been able to provide any evidence to support its claims of having achieved these returns. Further, investments of this nature carry a high risk of loss of some or all of an investor’s capital, and losses can exceed the amount of the original investment.

According to the regulatory authority, Phoenix Forex has previously advertised returns of between 50% to 65% per annum, and continues to promote the trading system as providing high returns.

Targeting Senior Citizens

Additionally, there is a more sinister aspect to this particular firm’s targeting of clients, as it angles its offering toward senior citizens. The company offers access to the OakFX trading system, which makes claims via its dedicated website that “Phoenix Forex Ltd is dedicated to the passive and semi-passive lifestyle income generation of its clients.”

The description continues that “being the sole NZ distributor for the OakFx trading platform and working in strategic alliance with other wealth management and online trading businesses, financial advisors and accountants, Phoenix Forex is ideally placed for growth, working with an aging population that seek an opportunity to make money working from their home computers.” The company claims that no market understanding is necessary and that client should simply switch it on and let it trade their account automatically, requiring something of a leap of faith.

As far as the regulatory status of the firm is concerned, the New Zealand FMA advises that any person who is in the business of providing financial services must be registered on the Financial Service Provides Register, and a company which is in the business of dealing in futures contracts, including margin foreign exchange products, must be authorized by the New Zealand FMA. Phoenix Forex is not registered as a financial service provider, and has not been authorized or licensed by the New Zealand FMA for any service.

The New Zealand FMA further recommends that prospective customers conduct their own due diligence on a person or company before engaging any financial service provider or paying any money with respect to a financial service or investment.