Investment Scams, Frauds, & Con Artists
Americans lose hundreds of millions of dollars every year to investment fraud. Con artists scam the rich and the poor; the sophisticated and the unsophisticated; the timid and the greedy. They take money from:
- widows and widowers;
- from young couples just starting out;
- from professional men and women with high paying jobs and a good education.
It makes no difference. The con artists have a scam for every situation.
This brochure offers advice to the potential investor on how to spot con artists, scams, and frauds. It is hoped that this information will help the investor avoid the investments touted by fraudulent promoters.
Ignorance and greed are the best friends of the con artists. Investment frauds succeed because people hear the promise of easy money and don't take the time to investigate the offer.
When you lose your money to a mugger or a thief, you are an unwilling victim. When you lose your money to an investment scam, you are persuaded to willingly hand your money to the con artist. Often it only takes a few minutes for a fast talking con artist to talk an unsuspecting investor out of his or her savings. . . money that has taken years of hard work to accumulate.
Do's and Don'ts For Investors
- Don't trust a stranger that calls and asks for your money. Be wary of unexpected letters, or even personal visits from strangers who offer quick-profit schemes. Con artists make their living by being friendly and sounding honest.
- Is the person you are dealing with trying to make you feel guilty? "Can't you make your own decisions?" Are they trying to make you feel silly or stupid? "Boy, when this takes off you will feel so stupid that you didn't invest!" Or how about greed? Remember that it is your money. Don't let anyone pressure you into investing in something before you have time to check it out.
- Beware of promises of high rates of return and/or quick profits with little or no risk. Con artists know what appeals to people. If it sounds too good to be true, it most likely is. The higher the return, the higher the risk. There is no such thing as a no risk investment.
- Don't give your money to anyone who says you must "Act Now! Tomorrow will be too late." If this is such a great opportunity why are they calling you? It will be here after you have had a chance to check it out. If you act in haste, the only thing that may be gone tomorrow is your money.
- Anyone using high-pressure tactics to force an investor into investing now is almost always selling a scam or fraud. He or she doesn't want you to think about it or check it out.
- Demand written information about the organization and the people behind the investment and its past track record and read this information! Ask Questions! Don't sign anything or make any commitments until you understand what you are purchasing. Do a thorough background check. Bear in mind, however, that even printed material can be forged, or falsified.
- If they tell you that a prospectus or offering circular isn't necessary, hang up or walk away. Even if it isn't necessary, never invest in something until you have written material about the company and the investment and have taken the time to check it out.
- Be suspicious of "insider information", "hot tips", and "rumors". When a stranger, or even an acquaintance, offers you a promising investment, ask yourself why. It is illegal to make money by using information that is not available to the general public.
- Don't feel indebted to someone who gives you "unsolicited" financial advice. Free financial advice is probably worth what you paid for it, and may cost you a great deal. It could cost you your life savings, retirement fund, or your house.
- If you are interested, take the time to talk with a third party, disinterested person. Talk to your regular stockbroker, your attorney, your accountant, or any other reputable consultant.
- Call the Securities Division @ 360-902-8760 or 1-877-RING DFI (1-877-746-4334) to check to see if the investment is registered or if there have been any complaints about the company. Check with the Better Business Bureau to see if there have been any complaints filed with them. However, just because there are no complaints on file doesn't mean that the deal is legitimate.
- The Securities Division can check the history of the promoter. Ask if they are registered to sell securities in Washington State? What is their disciplinary history? What is their employment history in the industry?
- When called on the phone by a promoter, don't be afraid to hang up. You are not obliged to listen—in fact, this kind of solicitation is an invasion of your privacy.
- If the caller is putting undue pressure on you or you feel uncomfortable with the conversation, hang up. You do not owe them an explanation.
How to Spot a Con Artist
Con Artists Come in Many Disguises
Obviously, if a con artist told you he or she was out to scam you out of your money, you wouldn't buy from them. Con artists blend in with the people they are trying to scam. They are "just like you and me". They may be part of your group such as church, political party, or community. A cold calling salesperson may talk about a news report about something vaguely related to what he or she is selling. "I am sure that you have heard about the "900" phone numbers. For just $XXXX you can earn XX%..." They need to sound respectable and trustworthy.
While con artists take great pains to look and talk just like you and me, they take even greater pains to look and sound like a very successful you and me. If they contact you by mail, they may have prestigious sounding addresses, even though these addresses may only be a mail drop, or a small back office rented month to month. If you go to their offices, they may have impressive looking offices. They are like the old false fronts in the Westerns. There is nothing behind them.
Con Artists Don't Want You to Understand
Today there are a great many institutions offering a wide variety of financial products. The newspapers report on the doings of the market. Social Security and retirement plans may not be there for retirees in the future. It is no wonder that people are confused and scared. They read about people who have gotten in on the ground floor, say of Microsoft, and made lots of money. Into this picture comes the con artist that is more than willing to help you reach a secure future. They will promise high returns with low or no risk. All they want you to do is give them your money and they will take care of everything. No need to know anything. Just leave the future to them. However, the only future they are taking care of is their own.
Con Artists Prey on Your Emotions
In order to get your money, con artists are experts in preying on your fears, insecurities, or greed.
- "You've heard the stories about people just like you losing their home, haven't you?"
- "This is so complicated, you wouldn't understand. I have researched it and I will handle it. What's the matter, don't you trust me?"
- "Wouldn't you like to double your money in the next 12 months?"
Don't make investment-related decisions based upon your emotions. If you feel that the person selling the product is attempting to manipulate you, watch out!
Con Artists Are Here Today, Gone Tomorrow
Before you invest the con artist will be very friendly. The first phone call may be no more than an opportunity for them to introduce themselves. They will chat for a bit, mention that if they ever have something you might be interested in, they will call back. There may be a second phone call, again, just to chat. The third call usually will be with something to sell. Each call after that they will put more pressure on you to buy. If you do succumb to the temptation and purchase their product, chances are you will hear very little from them, if anything at all, again. They will not return phone calls. Or if you do get in touch with them, they will assure you that everything is fine, no need to worry, etc. If you can't get answers to your questions after you have made the investment, this may signal danger.
Con Artists Will Tell You That There is No Risk
Every investment involves risk. Con artists, however, will say that there is no risk.
- "I just got a hot tip from an inside source that this will go through the roof."
- "The word on the street is that this deal is ready to take off."
- "There is no way you can lose money. Your return is guaranteed!"
- "Everyone is getting in on this."
- "You gotta get in on the ground floor now or you'll be left out in the cold. Let me send a messenger over tomorrow to pick up your check." (Con artists often use this method to avoid federal mail fraud charges.)
- "This is so sure fire all you have to do is sit back and watch your profits come rolling in."
A con artist doesn't want you to ask questions. He or she will have quick, glib answers to simple questions, but will become impatient when you ask in depth, probing questions. He or she doesn't like it when you ask where he or she is calling from, who he or she works for, what his or her background is, how much money he or she will make from this investment. Questions about the company, its track record, or requests for written material are generally frowned upon by the con artist. He or she may try and tell you the technology is top secret, or too technical for the average person to understand. Don't believe it.
Legitimate investment professionals will ask you questions. They will encourage you to ask questions. They will send you as much information as they can. They want you to understand what you are buying. They will explain the risks, the history of the company or fund, and anything else that they feel will help you make an informed decision.
The Newest High Tech Scams
The latest "surefire" investments con artists are touting are "900" numbers and pager licenses. The promoter offers to sell an investor a license covering a paging frequency for a specific geographic location. The promoter says, incorrectly, that the government will issue an individual or company only one license per market. The investor will make a huge profit in reselling a license to a paging company. The sad truth is, there is virtually no resale market for these licenses. The only people making easy money are the con artists.
The "900" number scams involve the purchase of shares in "information provider" partnerships. The promoter will invest the money in a "900" number service such as a dating service, or a gossip line, or celebrity "secrets" hot line. The investors are supposed to receive a certain amount of money from each call placed to their "900" number. Some of these scams have used celebrities to act as their spokespersons in infomercials. These "stars" give the scam credibility. The celebrity is paid to make the infomercial and has no stake in the service. It is just another day at the office for them, but unsuspecting investors are lured into investing because they trust the celebrity.
Just because a known celebrity "endorses" an investment doesn't make it legitimate nor does it mean that, even if it is legitimate, that you will make any money.
Scams on the Internet
When you sit down to read online ads and "chats", do so with a healthy dose of skepticism. The same tips for spotting scams and frauds if you are called, or read something in print, or hear something on TV, should be used when you are in cyberspace.
You have no way of knowing if a "friendly chat" is legitimate or if it is a ploy to get your money. If you do become interested, check it out just as you would any other potential investment. One gentleman liked to exchange stories about investment experiences and swap financial advice with other people on the Internet. He "talked" with another "investor" who described his success with a particular mutual fund. Our gentleman decided to invest and asked his electronic pen pal for the address and mailed off a check for $10,000. There was no such mutual fund. The address was a post office box and the person who talked about this great mutual fund has disappeared along with who knows how much money.
The American public is better educated today than ever before. Surprisingly though, the more informed people seem to be, the more careless they seem to be about their investments. Whether it is because we feel we are "too smart" to be duped or too busy so we hire "experts" instead of doing our own homework, the sad truth is millions of Americans lose money every year to investment scam con artists. Whatever the reason, don't allow yourself to become a victim of an investment scam.
Con artists do their homework before beginning a scam. They take the time to know their victims. They understand what triggers people to buy on blind faith. They have quick answers to every question. If con artists are willing to put in so much time to get you to give them your money, shouldn't you take time to check out the investment? Once you give a con artist your money, it is gone. Even if the con artist is arrested and convicted, there usually isn't any money left for them to give back. If you are lucky, you may get 10 cents on the dollar.
The sad truth is most of us take more time to research the type of laundry soap we purchase than we do our investments or the person selling the investment. Take the time to check out the investment and the salesperson. There is much more at stake than dirty clothes.
Call the Department of Financial Institutions Securities Division @ 360-902-87690 or 1-877-RING DFI (1-877-746-4334) to check out an investment or person selling an investment or if you have a complaint. While we cannot get your money back, we can investigate. Bringing these con artists out into the light helps insure that others are not victimized.
It'$ Your Money.
Department of Financial Institutions
PO Box 41200 Olympia WA 98504-1200
150 Israel Road
Tumwater WA 98501
1-877-RING DFI (1-877-746-4334)