The following are some of the most common scams and tips to help prevent you from being victimized.
Telemarketing
Fraud
When you send money to people you do not know
personally or give personal or financial information to unknown callers, you
increase your chances of becoming a victim of telemarketing fraud.
Here are some warning signs of telemarketing
fraud—what a caller may tell you:
* "You must act 'now' or the offer won't be
good."
* "You've won a 'free' gift, vacation, or
prize." But you have to pay for "postage and handling" or other
charges.
* "You must send money, give a credit card or
bank account number, or have a check picked up by courier." You may hear
this before you have had a chance to consider the offer carefully.
* "You don't need to check out the company with
anyone." The callers say you do not need to speak to anyone including your
family, lawyer, accountant, local Better Business Bureau, or consumer
protection agency.
* "You don't need any written information about
their company or their references."
* "You can't afford to miss this 'high-profit,
no-risk' offer."
If you hear these or similar "lines" from
a telephone salesperson, just say "no thank you" and hang up the
telephone.
Tips for
Avoiding Telemarketing Fraud:
It's very difficult to get your money back if you've
been cheated over the telephone. Before you buy anything by telephone, remember:
* Don't buy from an unfamiliar company. Legitimate
businesses understand that you want more information about their company and
are happy to comply.
* Always ask for and wait until you receive written
material about any offer or charity. If you get brochures about costly
investments, ask someone whose financial advice you trust to review them. But,
unfortunately, beware—not everything written down is true.
* Always check out unfamiliar companies with your
local consumer protection agency, Better Business Bureau, state attorney
general, the National Fraud Information Center, or other watchdog groups.
Unfortunately, not all bad businesses can be identified through these
organizations.
* Obtain a salesperson's name, business identity, telephone
number, street address, mailing address, and business license number before you
transact business. Some con artists give out false names, telephone numbers,
addresses, and business license numbers. Verify the accuracy of these items.
* Before you give money to a charity or make an
investment, find out what percentage of the money is paid in commissions and
what percentage actually goes to the charity or investment.
* Before you send money, ask yourself a simple
question. "What guarantee do I really have that this solicitor will use my
money in the manner we agreed upon?"
* Don’t pay in advance for services. Pay services
only after they are delivered.
* Be wary of companies that want to send a messenger
to your home to pick up money, claiming it is part of their service to you. In
reality, they are taking your money without leaving any trace of who they are
or where they can be reached.
* Always take your time making a decision.
Legitimate companies won't pressure you to make a snap decision.
* Don't pay for a "free prize." If a
caller tells you the payment is for taxes, he or she is violating federal law.
* Before you receive your next sales pitch, decide
what your limits are—the kinds of financial information you will and won't give
out on the telephone.
* Be sure to talk over big investments offered by
telephone salespeople with a trusted friend, family member, or financial
advisor. It's never rude to wait and think about an offer.
* Never respond to an offer you don't understand
thoroughly.
* Never send money or give out personal information
such as credit card numbers and expiration dates, bank account numbers, dates
of birth, or social security numbers to unfamiliar companies or unknown
persons.
* Be aware that your personal information is often
brokered to telemarketers through third parties.
* If you have been victimized once, be wary of
persons who call offering to help you recover your losses for a fee paid in
advance.
* If you have information about a fraud, report it
to state, local, or federal law enforcement agencies.
Nigerian
Letter or “419” Fraud
Nigerian letter frauds combine the threat of
impersonation fraud with a variation of an advance fee scheme in which a letter
mailed from Nigeria offers the recipient the "opportunity" to share
in a percentage of millions of dollars that the author—a self-proclaimed
government official—is trying to transfer illegally out of Nigeria. The
recipient is encouraged to send information to the author, such as blank
letterhead stationery, bank name and account numbers, and other identifying
information using a fax number provided in the letter. Some of these letters
have also been received via e-mail through the Internet. The scheme relies on
convincing a willing victim, who has demonstrated a "propensity for
larceny" by responding to the invitation, to send money to the author of
the letter in Nigeria in several installments of increasing amounts for a
variety of reasons.
Payment of taxes, bribes to government officials,
and legal fees are often described in great detail with the promise that all
expenses will be reimbursed as soon as the funds are spirited out of Nigeria.
In actuality, the millions of dollars do not exist, and the victim eventually
ends up with nothing but loss. Once the victim stops sending money, the
perpetrators have been known to use the personal information and checks that
they received to impersonate the victim, draining bank accounts and credit card
balances. While such an invitation impresses most law-abiding citizens as a
laughable hoax, millions of dollars in losses are caused by these schemes
annually. Some victims have been lured to Nigeria, where they have been
imprisoned against their will along with losing large sums of money. The
Nigerian government is not sympathetic to victims of these schemes, since the
victim actually conspires to remove funds from Nigeria in a manner that is
contrary to Nigerian law. The schemes themselves violate section 419 of the
Nigerian criminal code, hence the label “419 fraud.”
Tips for
Avoiding Nigerian Letter or "419" Fraud:
* If you receive a letter from Nigeria asking you to
send personal or banking information, do not reply in any manner. Send the
letter to the U.S. Secret Service, your local FBI office, or the U.S. Postal
Inspection Service. You can also register a complaint with the Federal Trade
Commission’s Complaint Assistant.
* If you know someone who is corresponding in one of
these schemes, encourage that person to contact the FBI or the U.S. Secret
Service as soon as possible.
* Be skeptical of individuals representing
themselves as Nigerian or foreign government officials asking for your help in
placing large sums of money in overseas bank accounts.
* Do not believe the promise of large sums of money
for your cooperation.
* Guard your account information carefully.
Identity
Theft
Identity theft occurs when someone assumes your
identity to perform a fraud or other criminal act. Criminals can get the
information they need to assume your identity from a variety of sources,
including by stealing your wallet, rifling through your trash, or by
compromising your credit or bank information. They may approach you in person,
by telephone, or on the Internet and ask you for the information.
The sources of information about you are so numerous
that you cannot prevent the theft of your identity. But you can minimize your
risk of loss by following a few simple hints.
Tips for
Avoiding Identity Theft:
* Never throw away ATM receipts, credit statements,
credit cards, or bank statements in a usable form.
* Never give your credit card number over the
telephone unless you make the call.
* Reconcile your bank account monthly, and notify
your bank of discrepancies immediately.
* Keep a list of telephone numbers to call to report
the loss or theft of your wallet, credit cards, etc.
* Report unauthorized financial transactions to your
bank, credit card company, and the police as soon as you detect them.
* Review a copy of your credit report at least once
each year. Notify the credit bureau in writing of any questionable entries and
follow through until they are explained or removed.
* If your identity has been assumed, ask the credit
bureau to print a statement to that effect in your credit report.
* If you know of anyone who receives mail from
credit card companies or banks in the names of others, report it to local or
federal law enforcement authorities.
Advance Fee
Schemes
An advance fee scheme occurs when the victim pays
money to someone in anticipation of receiving something of greater value—such
as a loan, contract, investment, or gift—and then receives little or nothing in
return.
The variety of advance fee schemes is limited only
by the imagination of the con artists who offer them. They may involve the sale
of products or services, the offering of investments, lottery winnings,
"found money," or many other "opportunities." Clever con
artists will offer to find financing arrangements for their clients who pay a
"finder's fee" in advance. They require their clients to sign
contracts in which they agree to pay the fee when they are introduced to the
financing source. Victims often learn that they are ineligible for financing
only after they have paid the "finder" according to the contract.
Such agreements may be legal unless it can be shown that the "finder"
never had the intention or the ability to provide financing for the victims.
Tips for
Avoiding Advanced Fee Schemes:
If the offer of an "opportunity" appears
too good to be true, it probably is. Follow common business practice. For
example, legitimate business is rarely conducted in cash on a street corner.
* Know who you are dealing with. If you have not
heard of a person or company that you intend to do business with, learn more
about them. Depending on the amount of money that you plan on spending, you may
want to visit the business location, check with the Better Business Bureau, or
consult with your bank, an attorney, or the police.
* Make sure you fully understand any business
agreement that you enter into. If the terms are complex, have them reviewed by
a competent attorney.
* Be wary of businesses that operate out of post
office boxes or mail drops and do not have a street address. Also be suspicious
when dealing with persons who do not have a direct telephone line and who are
never in when you call, but always return your call later.
* Be wary of business deals that require you to sign
nondisclosure or non-circumvention agreements that are designed to prevent you
from independently verifying the bona fides of the people with whom you intend
to do business. Con artists often use non-circumvention agreements to threaten
their victims with civil suit if they report their losses to law enforcement.
Health Care Fraud or Health Insurance Fraud
Medical
Equipment Fraud:
Equipment manufacturers offer "free"
products to individuals. Insurers are then charged for products that were not
needed and/or may not have been delivered.
"Rolling
Lab" Schemes:
Unnecessary and sometimes fake tests are given to
individuals at health clubs, retirement homes, or shopping malls and billed to
insurance companies or Medicare.
Services
Not Performed:
Customers or providers bill insurers for services
never rendered by changing bills or submitting fake ones.
Medicare
Fraud:
Medicare fraud can take the form of any of the
health insurance frauds described above. Senior citizens are frequent targets
of Medicare schemes, especially by medical equipment manufacturers who offer
seniors free medical products in exchange for their Medicare numbers. Because a
physician has to sign a form certifying that equipment or testing is needed
before Medicare pays for it, con artists fake signatures or bribe corrupt
doctors to sign the forms. Once a signature is in place, the manufacturers bill
Medicare for merchandise or service that was not needed or was not ordered.
Tips for
Avoiding Health Care Fraud or Health Insurance Fraud:
* Never sign blank insurance claim forms.
* Never give blanket authorization to a medical
provider to bill for services rendered.
* Ask your medical providers what they will charge
and what you will be expected to pay out-of-pocket.
* Carefully review your insurer's explanation of the
benefits statement. Call your insurer and provider if you have questions.
* Do not do business with door-to-door or telephone
salespeople who tell you that services of medical equipment are free.
* Give your insurance/Medicare identification only
to those who have provided you with medical services.
* Keep accurate records of all health care
appointments.
* Know if your physician ordered equipment for you.
Redemption
/ Strawman / Bond Fraud
Proponents of this scheme claim that the U.S.
government or the Treasury Department control bank accounts—often referred to
as “U.S. Treasury Direct Accounts”—for all U.S. citizens that can be accessed
by submitting paperwork with state and federal authorities. Individuals
promoting this scam frequently cite various discredited legal theories and may
refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.”
Trainers and websites will often charge large fees for “kits” that teach
individuals how to perpetrate this scheme. They will often imply that others
have had great success in discharging debt and purchasing merchandise such as
cars and homes. Failures to implement the scheme successfully are attributed to
individuals not following instructions in a specific order or not filing
paperwork at correct times.
This scheme predominately uses fraudulent financial
documents that appear to be legitimate. These documents are frequently referred
to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset
bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official
documents are used outside of their intended purpose, like IRS forms 1099,
1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal
terminology in order to appear lawful. Notaries may be used in an attempt to
make the fraud appear legitimate. Often, victims of the scheme are instructed
to address their paperwork to the U.S. Secretary of the Treasury.
Tips for
Avoiding Redemption/Strawman/Bond Fraud:
* Be wary of individuals or groups selling kits that
they claim will inform you on to access secret bank accounts.
* Be wary of individuals or groups proclaiming that
paying federal and/or state income tax is not necessary.
* Do not believe that the U.S. Treasury controls
bank accounts for all citizens.
* Be skeptical of individuals advocating that
speeding tickets, summons, bills, tax notifications, or similar documents can
be resolved by writing “acceptance for value” on them.
* If you know of anyone advocating the use of
property liens to coerce acceptance of this scheme, contact your local FBI
office.
Investment-Related Scams
Letter of
Credit Fraud
Legitimate letters of credit are never sold or
offered as investments. They are issued by banks to ensure payment for goods
shipped in connection with international trade. Payment on a letter of credit
generally requires that the paying bank receive documentation certifying that
the goods ordered have been shipped and are en route to their intended destination.
Letters of credit frauds are often attempted against banks by providing false
documentation to show that goods were shipped when, in fact, no goods or
inferior goods were shipped.
Other letter of credit frauds occur when con artists
offer a "letter of credit" or "bank guarantee" as an
investment wherein the investor is promised huge interest rates on the order of
100 to 300 percent annually. Such investment "opportunities" simply
do not exist. (See Prime Bank Notes for additional information.)
Tips for
Avoiding Letter of Credit Fraud:
* If an "opportunity" appears too good to
be true, it probably is.
* Do not invest in anything unless you understand
the deal. Con artists rely on complex transactions and faulty logic to
"explain" fraudulent investment schemes.
* Do not invest or attempt to "purchase" a
"letter of credit." Such investments simply do not exist.
* Be wary of any investment that offers the promise
of extremely high yields.
* Independently verify the terms of any investment
that you intend to make, including the parties involved and the nature of the
investment.
Prime Bank
Note Fraud
International fraud artists have invented an
investment scheme that supposedly offers extremely high yields in a relatively
short period of time. In this scheme, they claim to have access to "bank
guarantees" that they can buy at a discount and sell at a premium. By
reselling the "bank guarantees" several times, they claim to be able
to produce exceptional returns on investment. For example, if $10 million worth
of "bank guarantees" can be sold at a two percent profit on 10
separate occasions—or "traunches"—the seller would receive a 20
percent profit. Such a scheme is often referred to as a "roll
program."
To make their schemes more enticing, con artists
often refer to the "guarantees" as being issued by the world's
"prime banks," hence the term "prime bank guarantees."
Other official sounding terms are also used, such as "prime bank
notes" and "prime bank debentures." Legal documents associated
with such schemes often require the victim to enter into non-disclosure and
non-circumvention agreements, offer returns on investment in "a year and a
day", and claim to use forms required by the International Chamber of
Commerce (ICC). In fact, the ICC has issued a warning to all potential
investors that no such investments exist.
The purpose of these frauds is generally to
encourage the victim to send money to a foreign bank, where it is eventually
transferred to an off-shore account in the control of the con artist. From
there, the victim's money is used for the perpetrator's personal expenses or is
laundered in an effort to make it disappear.
While foreign banks use instruments called
"bank guarantees" in the same manner that U.S. banks use letters of
credit to insure payment for goods in international trade, such bank guarantees
are never traded or sold on any kind of market.
Tips for
Avoiding Prime Bank Note Fraud:
* Think before you invest in anything. Be wary of an
investment in any scheme, referred to as a "roll program," that
offers unusually high yields by buying and selling anything issued by
"prime banks."
* As with any investment, perform due diligence.
Independently verify the identity of the people involved, the veracity of the deal,
and the existence of the security in which you plan to invest.
* Be wary of business deals that require
non-disclosure or non-circumvention agreements that are designed to prevent you
from independently verifying information about the investment.
“Ponzi’ Schemes
“Ponzi” schemes promise high financial returns or
dividends not available through traditional investments. Instead of investing
the funds of victims, however, the con artist pays "dividends" to
initial investors using the funds of subsequent investors. The scheme generally
falls apart when the operator flees with all of the proceeds or when a
sufficient number of new investors cannot be found to allow the continued
payment of "dividends."
This type of fraud is named after its creator—Charles
Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme
that guaranteed investors a 50 percent return on their investment in postal
coupons. Although he was able to pay his initial backers, the scheme dissolved
when he was unable to pay later investors.
Tips for
Avoiding Ponzi Schemes:
* Be careful of any investment opportunity that
makes exaggerated earnings claims.
* Exercise due diligence in selecting investments
and the people with whom you invest—in other words, do your homework.
* Consult an unbiased third party—like an
unconnected broker or licensed financial advisor—before investing.
For more information:
- Bernie Madoff Case
- Stanford Case
- Wholesale Grocery Distribution Ponzi Scheme
- ATM Ponzi Scheme
- Victims Turn Tables with Ponzi Scheme
Pyramid
Schemes
As in Ponzi schemes, the money collected from newer
victims of the fraud is paid to earlier victims to provide a veneer of
legitimacy. In pyramid schemes, however, the victims themselves are induced to
recruit further victims through the payment of recruitment commissions.
More specifically, pyramid schemes—also referred to
as franchise fraud or chain referral schemes—are marketing and investment
frauds in which an individual is offered a distributorship or franchise to
market a particular product. The real profit is earned, not by the sale of the
product, but by the sale of new distributorships. Emphasis on selling
franchises rather than the product eventually leads to a point where the supply
of potential investors is exhausted and the pyramid collapses. At the heart of
each pyramid scheme is typically a representation that new participants can
recoup their original investments by inducing two or more prospects to make the
same investment. Promoters fail to tell prospective participants that this is
mathematically impossible for everyone to do, since some participants drop out,
while others recoup their original investments and then drop out.
Tips for
Avoiding Pyramid Schemes:
* Be wary of "opportunities" to invest
your money in franchises or investments that require you to bring in subsequent
investors to increase your profit or recoup your initial investment.
* Independently verify the legitimacy of any
franchise or investment before you invest.
Market
Manipulation or “Pump and Dump” Fraud
This scheme—commonly referred to as a "pump and
dump”—creates artificial buying pressure for a targeted security, generally a
low-trading volume issuer in the over-the-counter securities market largely
controlled by the fraud perpetrators. This artificially increased trading
volume has the effect of artificially increasing the price of the targeted
security (i.e., the "pump"), which is rapidly sold off into the
inflated market for the security by the fraud perpetrators (i.e., the
"dump"); resulting in illicit gains to the perpetrators and losses to
innocent third party investors. Typically, the increased trading volume is
generated by inducing unwitting investors to purchase shares of the targeted security
through false or deceptive sales practices and/or public information releases.
A modern variation on this scheme involves largely
foreign-based computer criminals gaining unauthorized access to the online
brokerage accounts of unsuspecting victims in the United States. These victim
accounts are then utilized to engage in coordinated online purchases of the
targeted security to affect the pump portion of a manipulation, while the fraud
perpetrators sell their pre-existing holdings in the targeted security into the
inflated market to complete the dump.
Tips for
Avoiding Market Manipulation Fraud:
* Don't believe the hype.
* Find out where the stock trades.
* Independently verify claims.
* Research the opportunity.
* Beware of high-pressure pitches.
* Always be skeptical.
-Birdy.
