How To Avoid Financial Scams

Look before you leap….

We all want to make money!!!! So when someone offers you the opportunity to make a quick buck, your instinct is to jump.

More often then not, the “opportunity’ is a scam! Trying to trick you out of your hard earned money.

“We won’t get fooled again” – It’s not just a The Who song anymore. Learn to avoid getting duped by financial scams.

Advanced Fee Fraud

Financial Scams

More that 30 million consumers are defrauded every year. In 2011 alone, the FBI reported that the amount of money recovered from financial scams was to the tune of $2.4 billion. That’s just the amount that was recovered!

Financial scams are extremely common today, especially with the use of technology and the Internet. In this mission, we’ll take a look at a few of the types of fraud out there, and how you can protect yourself from falling victim to these devious scammers.

Advanced Fee Fraud

Has a member of a royal African family asked you to front him thousands of dollars up front in exchange for a small fortune? Or maybe it was the Nigerian Prince, the Indian millionaire or the generous lottery winner who has been knocking at your inbox recently. If you have an email account (and I’ll bet you have more than one…) you’ve no doubt seen this act before. This type of scam is known as Advanced Fee Fraud. Frauds of this type are pretty simple to understand, but, amazingly, pretty easy to fall for.

Innocent people are promised quick and easy money in exchange for a small up-front (or advanced) fee. These individuals are duped into providing scammers with financial information including credit card numbers or worse, bank account details. Money is then removed from said bank account. Once funds have been removed, fraud victims never hear from the creator of the scam again.

As a result, funds are never returned. It is nearly impossible for government officials to crack down on the ringleaders of advanced fee frauds. So, the best course of action is to never release financial details. Even if you are promised money, diamonds, or whole countries in return, always be wary of releasing your financial information via email.

Curious about other scams?

Here are the top ten scams of 2012!

Ponzi Schemes

Ponzi schemes date back to 1920 and a man by the name of Charles Ponzi. Amazingly, these schemes are still widespread today.

When you think of a Ponzi scheme, consider the shape of a pyramid. At the top of the pyramid is one investor who invests money in the scamming individual or organization. Instead of getting his return the legal way, from profits earned by the operation, his return is paid off by the subsequent investment from two new investors. In turn, those two investors get their returns from four people who are below them. This pyramid keeps going until no potential investors are left. Since earnings are far less than amounts paid to investors, Ponzi schemes don’t last very long. These schemes entice new investors by offering higher returns than any other legal investments.

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Former NASDAQ chairman and well-known stockbroker Bernard Madoff operated one of the biggest Ponzi schemes to date. Madoff successfully turned his wealth management business into a massive Ponzi scheme that defrauded thousands of wealthy investors out of billions of dollars (roughly $65 billion). Because Madoff’s firm was originally legitimate, many educated billionaires trusted him. Madoff admitted to the scheme and was charged with a white-collar crime and jail-term of 150 years!

What’s in a name?

As we said, the Ponzi scheme is named after the man who became notorious for this technique in 1920. It does not, however, include his entire name; and for good measure. The “Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi scheme” doesn’t have the same ring to it.

Investment Scams

Wouldn’t it be nice if you could make a quick buck due to a random stock tip? Just like the Easter Bunny, hot stock tips are often fictitious. Popular investment scams involve stocks that are impossible to sell quickly due to a lack of buyer interest. In order to boost stock prices, scam artists will trick a number of people into buying “sure bet” shares. This technique is known as the “Pump and Dump”.

Once that stock has gone up, scammers ditch the stock – or, in other words once the stock price is pumped up, the scammers dump their shares for a profit. This leaves scammers with a tidy sum and investors with a stock that is worthless.

The best way to avoid an investment scam is to realize that there’s no such thing as quick money. If someone contacts you offering a stock that you can’t lose on, or an investment that’s guaranteed to make money, think twice before investing your dollars.

Hot stock tips or products that are “guaranteed” to make money can be chalked up to false hope. Take stock of the old adage: If it sounds too good to be true, it very well might be.


 Real Estate Scams

Real estate scams tend to come in home loan form. One popular scam is the home equity scam often called “stripping.”

In this scam, lenders approach homeowners with the promise of a low interest rate home equity loan. This loan comes with fees that homeowners do not notice. Over time, that same lender offers more and more low interest loans, eventually resulting in zero equity and more money owed than the home is actually worth. Here is an example of home equity stripping.

Another popular real estate scam includes refinancing. In this scam, homeowners are offered the chance to refinance a home at an amazingly low rate. Again, the unaware homeowner does not read the fine print. The promised low rate turns out to be a much higher rate after all fees are paid. This, in turn, results in a mortgage that’s too high for the homeowner to pay. Eventually the shifty lender forecloses on the refinanced home.

The lesson: Always read the fine print! If that’s not your thing, consult a lawyer or trusted professional before entering into a contract.

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Sweepstakes Fraud

Remember when Ed McMahon used to hand deliver sweepstakes winnings on live TV? Ah the good ‘ol days. Today’s sweepstakes’ presenters are often nameless, faceless individuals, scamming innocent people from their basement.

Sweepstakes “winners” are notified that they have won a contest that they never entered. But it gets worse. In order to retrieve the “prize”, the winner must wire money to sweepstakes central, send bank account details, or send some other form of payment. Needless to say, that prize is never awarded after the funds have been withdrawn.

Spotting a sweepstakes scam is relatively easy. Any request for bank account details is likely a scam – the same goes for wiring money or sending a cheque. Sweepstakes scammers also tend to send notification emails from free email addresses (Yahoo!, Hotmail, Gmail and so forth). Keep in mind that it’s impossible to win any sweepstakes or lottery without actually entering a contest.

Be prepared! is a great source for recent online scams. The website is dedicated to exposing fraudulent online behavior. Here are some examples of what some fake sweepstakes emails look like:

Merchandise Fraud

The retail industry loses roughly 9 billion dollars per year (and that’s a conservative estimate!) thanks to merchandise fraud. Merchandise fraud involves falsifying receipts, returning items that have only been used for a short period of time (“renting”), switching prices, and returning stolen goods. Detecting merchandise fraud is tough.

Technology makes it simple to create false receipts, and returning stolen items or items purchased elsewhere is hard to detect. The best way to avoid merchandise fraud is to train employees to spot false receipts and to know current in-store prices. Merchandise fraud has become extremely popular lately and is on the rise.

Mobile retail fraud is on the rise too! Here are some stats from LexisNexis:


Case study: The Nigerian Prince Scam

In 2002, the “Nigerian Prince Scam” deceived thousands of Americans out of millions of dollars. This is also known as the “Nigerian 419 Scam”, because “419” refers to the article number in the Nigerian Criminal Code that deals with fraud.

The scam involved an email claiming that a Nigerian prince was in need of help. The prince, as the story goes, was being tricked out of his inheritance. In order to reclaim his fortune, a valid American bank account was needed.

The prince promised to simply skip the country, retrieve his rightful funds, and reward bank account holders with money, diamonds, and other valuable objects. Does this sound like an obvious hoax? It’s hard to imagine that many people would fall for such a claim, but more than $100,000,000 (that’s $100 MILLION!) was lost during the duration of this scam.


Why did so many Americans fall for the Nigerian Prince Scam? It’s hard to say, but it can be speculated that people were looking for a quick fortune – maybe some were even hoping for a fairy tale ending?

The Nigerian Prince Scam left many without any funds, and some people who traveled to other countries to reclaim funds were even kidnapped and held for ransom. One such case involved a Japanese businessman by the name of Osamai Hitomi. He was lured to Johannesburg, South Africa by this scam and was kidnapped in 2008. The kidnappers demanded $5 million ransom from his family, but were eventually caught and arrested.

The moral of this story is that fairy tales only happen in books. If a government official, Nigerian Prince, or if Prince Charming contacts you via email, do not send them your bank account details – no matter how much you want to help that poor prince.





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