What You Need to Know about Financial Fraud

Leo Maheras |

Many of us grew up in a world where it was customary to be friendly, courteous, and trusting. Unfortunately, assumptions concerning these standards of conduct can sometimes get us into trouble. Con artists offering a variety of too-good-to-be-true investment “deals” are banking on the willingness of trusting individuals. Unfortunately, many people experience financial difficulties, thus making them more vulnerable to financial fraud.


With the multitude of contact options, ranging from the phone to the Internet, scammers have virtually an unlimited number of opportunities to obtain another individual’s personal information. Common scams include e-mail chain letters that promise a pyramid of payoffs that always fall apart once the victim has bought into the system. Another is one in which a foreign prince, doctor, or chief e-mails the victim and claims to need assistance transferring his riches to an American bank account. The victim may be promised as much as 30% of the transferred millions and is asked to pay the perpetrator a fee to prove his or her honesty.


Fake charities are another common scam. Kind-hearted donors may be swindled into paying large sums to a cause that benefits only the con artist. Phone calls and postal mail can be used to offer individuals the chance to “win” the lottery or claim a sweepstakes prize. In the end, these supposed winnings only end up causing financial loss and heartache. Topping off all of these scams are fraudulent investment opportunities wherein the victim may be promised fantastic returns on capital from “lucrative” oil and gas leases, rare coins and metals, etc.


Too often, these scams go unreported because of the shame victims experience once they realize they have been had. And that’s just what scammers are banking on. The FINRA Investor Education Foundation teamed up with WISE Senior Services and the AARP to study economic fraud. In a 2006 report entitled, “Off the Hook Again: Understanding Why the Elderly Are Victimized by Economic Fraud Crimes,” several discoveries were made that can be applicable to people of all ages. One focus of the report was the psychological tactics typically used by cons to increase their success rates and decrease their chances of being reported. Victims may be led to believe that their only option is the one being presented in the scam, or the scammer may befriend the victim knowing that people are less inclined to ask friends hard-hitting questions. Another ploy is a request for help from the scammer, which taps into the victim’s sympathy. Or the scammer may claim famous investors are also buying into the property, or the product is in such high demand and so rare that the victim is lucky to have even heard about it in the first place.


Con artists may also use their assumed authority to coerce victims into letting the con make the decision for them; offer no-risk, guaranteed results; intimidate the victim by playing on his or her fears; or procure more and more payments by telling victims they are committed to the investment and must continue to invest in order to not lose the sums they have already paid.


On paper, these tactics might sound entirely transparent; in reality, they are often extremely effective. Anyone can become a victim, regardless of age. The FINRA study also revealed that fraud techniques may be tailored to the psychology of the individual. Financial education alone may not be enough to put an end to fraud, since one of the study’s major findings indicated that fraud victims are more financially educated than non-victims and more willing to listen to sales pitches. In addition, victims are more likely to have experienced negative life events, such as job loss, divorce, or the death of a spouse.


One way to fight fraud is to walk away from “must-act-now” deals and do your own research. Be skeptical, question why the offer is being made to you, and contact the Better Business Bureau to learn more. Don’t waste time listening to cold-call sales pitches, and consider getting second opinions from trusted advisors, friends, and family before taking action on any “hot” deal. In the end, consider following the old adage: If it sounds too good to be true, it probably is. To learn more, visit www.consumerfraudreporting.org.



Important Disclosures

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness and accuracy.

This article was prepared by Liberty Publishing, Inc.


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