Brokers urged to be vigilant when buying/selling trail books

However, the busy time of year can also lead to a surge in scams – which has been exacerbated by the increasingly digital way of working during COVID-19.

The deputy chair of the Australian Competition and Consumer Commission (ACCC), Delia Rickard, said in June: “Last year, scam victims reported the biggest losses we have seen, but worse, we expect the real losses will be even higher, as many people don’t report these scams.

“Unfortunately, scammers continue to become more sophisticated and last year used the COVID-19 pandemic to scam and take advantage of people from all walks of life during this crisis.”  

According to the most recent Targeting Scams Report from the ACCC, Australians lost over $850 million to scams last year, with investment scams the most commonly reported scam.

Investment scams also accounted for the biggest losses, at $328 million, and made up more than a third of total losses. 

The ACCC’s report reads: “It appears to be increasingly difficult for people to identify legitimate investment opportunities from scams. 

“Scammers no longer just rely on professional looking websites. They now have the ability to contact people through phone, apps, social media and other means.”

Speaking to The Adviser, Jeff Zulman, founder and managing director of TrailBlazer Finance – a boutique lender offering business loans, valuations, and M&A advice and execution to financial intermediaries (including trail book loans) – stated that one investment scam that typically impacts brokers involves trail book investment.

While buying and selling trail books is a common and legitimate means of finance for mortgage brokers, Mr Zulman said that “historically, there have (unfortunately) been instances where people have been unwittingly deceived into parting with money to acquire trial books, which what subsequently found to be not available for sale”.

He highlighted the March 2019 sentencing of Mark William Wittingham in the Melbourne County Court, in which he was sentenced to five years imprisonment for 16 counts of “obtaining financial advantage by deception” over a period of 42 months, including three relating to trail book scams.

“Therefore, one should always assume when approached that there is a possibility of it being a scam, and make necessary inquiries about the good standing of a potential counter party before parting with any money, or even client information, which would be subject to privacy legislation,” Mr Zulman said.

“This should be no different than when you are wanting to buy a secondhand car. You might insist that the car is inspected by an RACV or NRMA vehicle inspector, or a trusted mechanic, to ensure that the car really is in peak condition and only being driven by a little old lady to church on Sunday (as advertised). When you’re investing in a trail book, you want to know that it is exactly what it is purporting to be.”

Mr Zulman offered brokers the following tips for brokers when looking to invest in a trail book: “If somebody offers to sell you a trail book, ensure that you obtain sufficient information to determine if the owner is even aware of the sale and that you’re actually dealing with the legal owner, or their authorised representative. 

“While you may be asked to sign a confidentiality agreement or non-solicitation (where you won’t go behind their back to deal directly with the counter party), no money should ever change hands until you are fully satisfied as to the ‘locus standi’; the legal standing of the party that you’re dealing with,” he said.

He also advised that brokers could protect themselves from trail investment scams by doing the following:

1. If you have any suspicions, ensure that the business is registered, that the parties assisting in the process are not on any banned/disqualified ASIC registers, and that they do not have a criminal record for finance-related crimes;
2. Make inquiries of the aggregator from which the book is being sold to ensure that the book that is being offered for sale is not subject to any sort of compliance investigation. Mr Zulman elaborates: “For example, if you acquire a book and then find out that the book is under investigation and has suffered a lot of clawbacks, even though you never earned the trail, as the legal owner, you will suffer the clawbacks. Worse still, if there were any frauds perpetrated by the prior owner, you may be liable as the new owner to make good. That can be a very expensive problem”;
3. Ensure that the loan book/asset has not been offered up as security for finance (for example, via a PPSR search) so that you can ensure good title;
4. Confirm any verbal representations with the vendor in writing; 
5. Ask your association or aggregator for recommendations of “recognised, trustworthy intermediaries” who are experienced/that they’ve had personal exposure to, before using a trail book buyer/seller for the first time.

The ACCC also encourages businesses that have been scammed to contact their bank as soon as possible, report a scam to ReportCyber (which is run by the Australian Cyber Security Centre and passes reports to law enforcement agencies for assessment and intelligence purposes) and the Scamwatch website. 

Small businesses can also subscribe to Scamwatch radar alerts for information about current and emerging scams and the ACCC’s Small Business Information Network, which also provides details about new or updated resources, enforcement action, changes to Australia’s competition and consumer laws, events, surveys and scams relevant to the small-business sector.

[Related: Trail book scammer jailed]