Saturday, August 30, 2008
In Phoenix you can call Emergency Evictions Assistance helps individuals with Crisis landlord/tenant assistance for individuals. They are located at 1112 E. Buckeye Road, Phoenix, Arizona 85034 and their phone number is 602-257-0700. There are similar agencies in other larger cities across the country.
Scam artists attempt to take advantage of victims in many ways, such as “lost property” or “lost pet” scams. Scams can also involve home improvements and auto repairs.
Abigail loved her pet miniature Schnauzer “Tippy.” He was just like one of family. She was devastated when Tippy was missing one afternoon. She searched the entire neighborhood without success. She felt like she had lost her dearest friend.
The next day, she got a picture of her pet and made a flyer on her computer. She took the picture and the flyer to a nearby copy center and made twenty-five copies. Abigail posted the copies on trees and poles in the neighborhood. The next day she received a call from someone who said they had found her dog. Abigail was overjoyed. Then, the person on the phone told her that he would need $150 so he could ship the dog to her. He told her to send money to a mail drop in a nearby town. Abigail didn’t know what to do, but she finally sent to money later that day. Unfortunately, she never received the dog. Abigail was a victim of a lost property or lost pet scam.
Elements of lost property or lost pet scam:
- The victim loses a valuable piece of property or treasured pet.
- In an attempt to find the property or pet, the victim advertises, either in the newspaper or by flyers in the neighborhood.
- The victim is contacted by someone who offers to return property or pet for a price.
- The victim pays the money, never hears from the person again and never receives the property or pet.
This is one of the most objectionable scams. Only the lowest kind of scam artist would try to take advantage of someone who had lost a pet or other valuable property. The scam artist takes advantage of the victim’s attempt to locate the pet or lost property by obtaining to the victim’s telephone number either through the posted flyers or the ads placed in the classified section of the newspaper.
Usually, law enforcement agencies, such as the police, are anxious to find the scam artist. But, often they have no way to trace the calls or the money. When the police or telephone company has tried to trace the telephone calls to find the scam artist, they usually find that the call was made from a pay telephone. It is practically impossible to determine who placed the call from the pay telephone.
A version of the lost property scam is the unclaimed property scam.
Evelyn received a phone call from a woman who said she represented the Property Clearinghouse of America. She explained that they were an organization that attempted to find the owners of unclaimed property. She said that this week they were dealing in airport property and that she was investigating four large boxes that had been left at the Chicago airport. Apparently, she said, the boxes were addressed to Evelyn at her home address. Evelyn couldn’t imagine who was sending her boxes. The woman explained that the boxes would be sent to Evelyn if she would simply pay the shipping and handling cost. She requested a credit card number and explained the amount of the shipping charge. Evelyn was still very puzzled but she gave a lady her credit card number and confirmed her address. It wasn’t until the next month when she received a credit card bill that she realized she had been scammed.
In these scams, the scam artists usually say the merchandise or packages have been abandoned, but that they can be delivered for a fee. The merchandise or packages are never delivered or, if delivered, are of nominal or very limited value.
Protect yourself by:
- Absolutely never sending money to anyone as a result of a phone call request. Refuse to give personal or financial information to a telephone caller.
- Insisting on physical return of the property or pet before making any payment for its return.
- Contacting the police or other enforcement agency immediately upon receiving a phone call from someone offering to return the property or pet for payment.
- Taking the time to investigate any representations concerning unclaimed property.
- Getting a callback number and verifying with the airport or other shipping source concerning the unclaimed property.
- Taking the same precautions you would with any telemarketing scheme.
Another area in which you should be cautious is that of home improvements or repairs. Many variations exist of the home improvement scam.
Eric was out pruning his roses when a man with a pickup truck stopped in front of his house. “Who could then be?” he wondered. A man got out of the truck and walked up to him.
“Hi, my name’s George. I’m a paving contractor and we just finished a job around the corner and had some extra paving material leftover. I noticed that your front driveway needs patching. We can do the job at a good discount because we already have the materials and I don’t want my men to lose a day’s work.”
Eric looked at his driveway. It certainly did need repair and the man seemed nice enough. “How much would cost?” he asked.
“Well, if we did the job today with the materials that we have on hand, I could do it for $300.”
That seemed pretty expensive to Eric, but the man was right there ready to do the work. In fact, he had already started unloading the truck. Almost before he knew what happened another truck arrived and the men were already doing the job. He didn’t remember telling them that they could start.
“I can only take payment in cash because I have to pay my men,” said the man. “If you don’t have the cash, you could go cash a check and by the time you get back we’ll be finished.”
Eric went to the bank and got the money and came back just as the men were leaving. As the men drove off, he noticed that the truck had an out-of-state license plate and began to worry about the job. Before too long, he realized that he had been taken. The men had used inferior materials and done an extremely poor job. It certainly was not worth $300. He didn’t remember hearing the name of the company. Later, when he had the job done over, he found that a local licensed contractor would do the job for $100 and give him a guarantee. Eric had just become a victim of the home repair scam.
Elements of the home repair scam:
- An offer to do repair or maintenance work either quickly or for a special price because materials are “left over” from another job “in the neighborhood.”
- Lack of a written estimate or contract.
- Request for payment in cash.
- Offer to do the job while you wait for payment at the end of the job.
- Cars or trucks with out-of-state license plates.
There are a number of warning signs of the home improvement scam. Scam artists employing this device often look for older people standing outside their homes. They offer to do home repairs at a reduced price using materials “leftover from another job in the neighborhood.” The final price demanded for the repairs is often higher than the initial estimate. Many times the bogus contractor fails to get all the proper building permits and licenses required by the city, county, or state.
Before employing any contractor to do repairs on your property make sure of the repair person is licensed and bonded. It is always a good idea to call the state licensing bureau, such as the registrar of contractors, to verify that the person is licensed and bonded. Another good practice is to contact at least one other contractor for an evaluation and second estimate. Always ask for references whether or not you actually contact them. Take some time‑several days‑to think things over and call the references given by the repair person.
Protect yourself by:
- Using only contractors registered and bonded by the state.
- Checking the references and credentials of all contractors.
- Getting all offers in writing, signed by authorized representative of the contractor.
- Getting more than one estimate, even for small jobs.
- Taking your time to think over any contracting job.
- Making sure you or the contractor gets all the necessary building permits and licenses.
Another type of involves automobile repairs. These scams attempt to get the victim to pay for unneeded parts or service.
Sandra’s husband always took very good care of their automobile. When he passed away suddenly, it took her many months to adjust to loss. While driving to the supermarket she noticed that the car was pulling to the left. She began to worry that there was something seriously wrong and finally decided to take the car to the dealer to have it repaired. The service manager seemed very nice. Sandra waited in the lounge provided for customers while her car was repaired. Finally, after considerable time, the service manager told her that there were serious problems with the steering and the front end of the car. The repairs would be nearly $1,000. Sandra was shocked. She had no idea car repairs could be so expensive. The manager went on to tell her that would be extremely dangerous to drive the car in its present condition. Sandra decided she’d better get the car fixed. In this case, Sandra never did learn the she’d been scammed. What she didn’t learn was that the “steering problem” was nothing more than a low front tire.
Elements of the automobile repair scam
- Unnecessary repairs done with or without legitimate repairs.
- Substitution of inferior parts for genuine manufactures replacement parts while charging the full manufactures replacement parts price.
- Padding the bill with unnecessary or worthless service.
- Failing to give an accurate estimate before beginning repairs.
- Replacing good serviceable parts with used bad parts from another automobile.
- Using the car for business or personal purposes under the guise of “test driving” the vehicle.
- Overcharging out-of-town or apparently helpless customers.
Unfortunately, Sandra has a lot of company in the world. Unless you are a mechanic and do all the work yourself, it can be difficult to know when every repair job is necessary. However, there are some things you can do to protect yourself. It is very important to at least know, generally, what is wrong with your car before taking it in for repairs. If you do not have knowledge or interest to understand your car’s problems, find a friend or an acquaintance who can help you. If the mechanic recommends an expensive repair it is important to get a second and perhaps even a third opinion.
Protect yourself by:
- Finding an auto repair shop before you need one.
- Making sure the mechanic working on your car is qualified to make the repair.
- Getting a written estimate for all repairs over $50.
- Checking with any regulatory agencies to see whether complaints have been filed against the repair shop.
- Obtaining a legible, detailed copy of the repair invoice showing any work done and describing any guarantee.
- Obtaining more than one estimate on major repairs.
- Making sure the repair shop is authorized to make manufacturer’s or extended warranty repairs.
- Insisting that the repair shop contact you if the repairs exceed the estimate by 10%.
- Immediately making a complaint about any dishonest repair practices to the appropriate government enforcement agency.
Wednesday, August 27, 2008
“Pigeon Drop” scams are some of the most elaborate and blatant ways of stealing money.
Sarah enjoyed malls and today she had lots of time. She particularly liked window shopping at the more expensive stores. While she was admiring a particularly attractive dress, a well-dressed young woman who appeared to be very agitated came up to her. The young woman was carrying a sack.
“Pardon me,” the woman said. “Look what I just found.” She opened the sack just enough to show Sarah what appeared to be a large sum of money.
“Goodness,” said Sarah. “Where did all that money come from?”
“I just saw the sack sitting there on the ground and opened it up. I found all this money inside. How much money do you think there is in the sack?”
Sarah had never seen much money before. She was very curious why the young woman had spoken to her. “Is there something I can do to help you?” asked Sarah.
“When I saw you, I just knew that you could help me. Let’s sit down here and see how much money is in the bag.” The woman sat down at a nearby bench and opened the bag. Sarah sat down to see how much money the young lady had found. There was indeed a lot of money in the bag‑it contained more than $15,000.
“How could anyone lose so much money?” asked Sarah. “It sure makes you think that people today are very peculiar.”
“I knew you’d understand,” said the young woman. “You’re so sympathetic that I just have to share this money with you.”
Sarah was very surprised. She never imagined that by going to the mall that day she would come into so much money. The young woman went on, “I’ll give you half, if you’ll just help me.”
That would be $7,500. Sarah hadn’t seen that much money for in years. She did have a lot of money in the bank but she never withdrew more than just enough to live on. Sarah began to imagine the things she could buy with $7,500. Maybe she could buy the new dress she saw in the store window. The young woman began telling her a story about all the difficulties she had gone through recently. Sarah hardly heard a word she said.
Suddenly, the young woman stopped talking. “I just had a terrible thought,” she said. “What if somebody claims the money?” Sarah had always been honest but she wanted to believe that no one would claim the money. “I must know if you have enough money to pay me back if someone claims the money in the sack,” she said.
Sarah told the young woman that she had plenty of money in the bank. The young woman assured her that she trusted her, but just the same she would like to make sure Sarah was telling the truth. They walked to the bank branch right there in the mall. Sarah withdrew $7,500 of her own money to “prove” to the young woman that she had enough money in case the real owner came forward. The young woman took the money, put it in an envelope, and walked towards the front of the bank while Sarah followed her. “We’ll sit down right here and I’ll count the money.”
“Just a minute,” said the young woman. “I need to run to the restroom.” She handed the envelope to Sarah and walked away. Sarah sat there for a long time. Finally she looked in the envelope. All she saw was some pieces of newspaper. The young woman had disappeared with her money. Sarah just became a victim of the pigeon drop scam.
Elements of the pigeon drop:
- A stranger approaches you with a story about having found a large sum of money.
- The stranger offers to share the money with you if you will assist in some way.
- Before receiving your share of the money, you must show your “good faith” by putting up a deposit.
- The stranger insists that you go to your bank right then to take out the money for the deposit.
- The stranger will either take the money to count it, or make some other excuse for leaving with the money.
The pigeon drop is a very complicated scam with a number of variations. Sometimes this scam is run by two or more individuals. The story told by the scam artists is always different, but the elements of the scam are essentially the same. Whatever the story, the intent is to get the victim, usually an elderly person, to put up the “good-faith” money in case the real owner is found. The elderly person’s good judgment is blinded by seeing a large sum of money. Although it seems nearly impossible that anyone would fall for such a story, every year there are accounts of people being victimized. To guard against this fraud, it is merely necessary to ask yourself “Why would someone who had just found a large sum of money offer to share half of it with a perfect stranger?” It is important to understand that scams do not need to be reasonable or even logical to take advantage of the victim.
Protect yourself by:
- Never discussing personal or financial information with strangers.
- Never allowing a stranger access to your credit card or bank account numbers.
- Thinking “Why would anyone who had just found a large sum of money offer to share part of it with a complete stranger?”
Friday, August 22, 2008
Many scams involve the sale of products or services to the unsuspecting victims. These products can be: healthcare or medicine; medical alert devices; home security systems; land; objects related to some special event, disaster, or major crisis; collectibles; auto repairs or parts; and much more. All of these scams attempt to take advantage of the victim’s fears or hopes. Besides scams involving many products, this section will also briefly address collectibles scams.
While Emily was watching television, she became very interested in a 30-minute “infomercial” extolling the virtues of a new product that promised a “cure” for arthritis. The man in the in the infomercial, who was identified as a doctor, called the medication a “stupendous breakthrough” in medical science. Emily had suffered with arthritis for many years and had found little relief from the doctors or the medication they prescribed. Her call for information resulted in a visit from a high-pressure salesman. After almost two hours, Emily was convinced that she had found a cure for her arthritis. She gladly paid the salesman $250 for her initial supply of the medication. As a bonus, the salesman told her that the purchase price was completely reimbursed by Medicare. The next day, when her sister came to visit, they examined the bottles and discovered that the medication was nothing more than some commonly available herbs. Emily was the victim of a healthcare products scam.
Elements of products scams:
- Exaggerated claims about the effectiveness of the product.
- Advertisements depict extremely emotional situations and often prey on fears of older people.
- Unsolicited calls by a salesperson after the person contacts the business for information.
- High-pressure sales tactics often use intimidation.
- Advertisements often insinuate that the product is “so effective” that the traditional medical establishment (or other professional organization) is concerned that it will lose business.
- Untrue claims that healthcare products are reimbursed by Medicare.
Since there are so many different products and ways of selling them, it is important to take some time before making purchases or signing contracts to investigate the claims. For example, real “medical breakthroughs” are announced in professional medical journals not by salespeople on TV. With some products, you may just find out that you bought something that ends up useless or does not work as advertised. However, with health care products, it is important that you find out if the product will have any negative side effects or interactions with your current prescriptions. Contact your doctor or health care provider before taking medications or other treatments. Many diseases and conditions, such as cancer, AIDS, and arthritis, have national organizations that can provide you with reliable information on the latest developments in that field. They may also be able to provide you specific information concerning the proposed treatment or cure. It is always important before spending money on expensive products to verify claims that the medication or treatment cost will be reimbursed by Medicare or your own health insurance.
Protect yourself by:
- Reading and understanding all contracts completely before you sign.
- Consulting with qualified professionals before entering into installment contracts and obtaining more than one bid on a possible contract.
- Verifying all claims for “medical breakthrough” cures with competent medical professionals including doctors, pharmacists, and others with the background to know about the claims.
- Talking to others who have the same service or product to find out how they like it and whether it serves their needs.
- Reporting fraudulent activity to the appropriate consumer protection agency in your state.
- Never inviting a salesman into your home when you are alone and not taking advice from a person you have never seen before and will likely never see again.
- Never signing a contract or agreeing to a purchase before reading and reviewing the provisions out of the presence of the salesman.
Another type of “product scam” is the collectibles scam. This scam is often portrayed as an “investment opportunity,” though the scam artists are attempting to get you to purchase worthless items.
Mary opened her mail to find a colorful brochure advertising “original artwork.” The brochure discussed the investment possibilities of owning original artwork and stated that “all of the paintings in our collection are originals signed by the artist.” The brochure went on to explain that original artwork appreciates tremendously after the death of the artist and that many of the artists in this collection were reaching the ends of their careers. Buyers were assured that each picture came with a “certificate of authenticity.” Mary was very interested and called the number for further information. She found out that the paintings cost many hundreds of dollars but that she could expect them to increase dramatically in value over the next few years. Mary purchased two of the paintings as an investment. She didn’t realize that she been scammed until a few years later when she took pictures to be appraised for insurance purposes. Mary then found out that they were worthless copies.
Elements of the collectibles scam
- Collectibles of any description offered primarily as an “investment” and not as merely a collectible.
- The victim has given little or no opportunity to examine the collectible before purchase and discouraged from obtaining an independent appraisal.
- The collectible often comes with a “certificate of authenticity.”
- The collectibles are sold outside the normal retail channel for such items.
Collectibles are a fertile area for scam artists. Some scam artists will deal in counterfeit collectibles. Others will try to sell a less valuable item as if it were more desirable. They accomplish their task by altering the item to make it appear more valuable. This is particularly a problem with certain types of collectibles, such as postage stamps, coins, and gemstones. Before purchasing expensive original art or collectibles it is very important to obtain an independent appraisal. A legitimate dealer will never hesitate to allow an independent appraisal. Experience has shown that only the most knowledgeable collectors make money by investing in collectibles. The value of collectibles, of no matter what type, is always dependent upon the same things: condition and desirability. Likewise, collectibles go in and out of fashion. Today’s hot item may be worthless tomorrow; unfortunately the opposite is sometimes true. This is one area where there is no substitute for extensive personal experience or the advice of a trusted expert.
The easiest advice to give about collectibles is to buy only those things which you yourself enjoy owning. Without the extensive background knowledge of the particular collectible you purchase, you are seldom likely to purchase a good investment. One simple rule governs all collectibles: they are sold at retail and purchased at wholesale. Often, the markup in collectibles is far in excess of 100 percent. This means that if you purchased a collectible for $100 from a dealer, the same dealer would only pay you $50 or less for the item. Although, high-quality collectibles may appreciate over time, unless you wait 20 or 30 years you’re unlikely to make up the difference between retail and wholesale by appreciation alone.
Protect yourself by:
- Purchasing only collectibles that you personally enjoy and want to keep.
- Becoming knowledgeable about your collectible interest area.
- Purchasing collectibles only from reliable dealers.
- Obtaining an appraisal from a independent, professional appraiser before purchasing an expensive collectible.
- Understanding the economics of collectibles – they are sold at retail but purchased by dealers at wholesale.
- Realizing that condition and desirability are of the utmost importance in determining the value of a collectible.
Sunday, August 17, 2008
Some scams involve the use of long-distance numbers to bilk victims of their money. Other “businesses” may engage in illegal tactics, such as long-distance “slamming.”
Mike sorted through the pile of mail he had received a day. Sometimes it was hard to tell the real bills from the junk mail. A brightly colored postcard with a picture of a new car caught his eye. On the back of the card was an announcement that he had won a valuable prize. There was an official looking stamp embossed on the card titled “Award Claim Number” with a long number following. The card appeared to be sent by the “National Awards Clearinghouse” at an out-of-state address. Mike studied the card carefully. There was a section of very small print that he couldn’t quite read. The card gave a number to call to redeem the prize. Mike figured he couldn’t lose anything by calling the number. After talking to the salesmen on the other end of the phone, Mike decided that the prize really wasn’t free and that he wasn’t interested. He didn’t realize he been scammed until he got the large phone bill the next month for the “900” number phone call.
Elements of telephone or area code scams
- An offer of free merchandise or a free travel opportunity with a notice to call an unfamiliar telephone area code or 900 number. The notice can come on a postcard, letter, or email.
- When the number is called, the person on the other end of the line tries to keep the caller on the telephone as long as possible.
- A caller may leave a message on an answering machine requesting a callback about a family emergency or other important subject from a long distance number.
- The victim is charged a substantial fee, in the form of long distance charges, to attempt to redeem the prize or premium.
- Illegally switching your long distance service without your permission or knowledge.
There are hundreds of variations of the long distance area code scam. Arrangements with phone companies, sometimes in foreign countries, allow callers to be charged extremely high rates for telephone calls to a certain area code. In the United States, the most common is the “900” area code. Companies can purchase or lease a 900 number and the caller is then charged at the rate set by the company. Some companies use these numbers for legitimate purposes such as selling technical support.
In these types of scams, the scam artist tries to get you to make the phone call in an attempt to put you off guard. Sometimes the scam artist will even call and say that a member of the family has been injured or is seriously ill. The idea is to get the victim to return the call to the toll charging area code. When the victim calls the scam artists attempt to keep the victim on the line as long as possible thereby running up a very large phone bill. It can be very difficult for the victim to get the charges reversed especially if the phone number is in a foreign country. Sometimes, if the number is registered as an “adult” site, the caller may be too embarrassed to make an issue of the charge.
Just as with the telephone “free prize” offers, the solicitor will often attempt to get a credit card number for identification purposes. Had Mike given his credit card number to the salesman on the phone he may have also had unauthorized charges made against his credit card.
If you find that an authorized payment has been made from your checking account or that unauthorized charges have been made against your credit card account, is extremely important to contact the bank or card issuer immediately. In the case of credit cards, federal law limits the total amount of your liability. However, this is not the case with checking accounts. In some cases, if the bank is contacted quickly enough, you may be able to get your money back.
One type of telephone scam is “long distance slamming,” as seen in the following example:
Linda and her husband Ron really enjoyed going to craft and antique fairs. This Saturday they were looking for antique silverware. Linda noticed a booth with a sign for a free drawing. She picked up one of the cards and filled it out with her name, address, and phone number. However, she failed to read the small print on the card. Linda and Ron went on to enjoy their afternoon. The next month she received a bill from a new long distance company. The card she filled out at the antique fair had authorized a change in her long distance service provider. Linda was a victim of slamming.
“Slamming” refers to having your long distance service switched without your permission or knowledge. Slamming is illegal. Many state attorneys general are actively prosecuting companies for illegally changing long distance service. It is frequently impossible to tell you are being slammed. Telemarketers will call and represent themselves as calling from your present long distance service. They may not even refer to the name of the company they are representing. They may ask a misleading question such as “Would you like a lower-priced long distance service?” When you answer the question “yes” they switch the service.
If you find that your long distance service has been switched without your permission, report the problem immediately to your state’s consumer protection agency. Telephone service is a state and federally regulated business and most enforcement agencies are painfully aware of the problem.
Protect yourself by:
- Not returning calls from strange area codes or 900 area codes.
- Calling the relative or friend directly, if you are told by a strange caller about an illness or injury.
- Calling the telephone company or looking on the Internet to identify the toll charging area code.
- Understanding that if you call a toll charging area code you will receive a much larger telephone bill.
- Throwing away “free prize” mail.
- Never giving any personal or financial information, especially credit card numbers or checking account numbers to receive supposedly free merchandise.
- Knowing that if there is a charge, the offer isn’t free.
- Hanging up immediately when questioned about your telephone service and getting all information about rate changes in writing.
- n Reading all promotions before signing to make sure you’re not authorizing a change in your long distance service.
- Instructing your local phone service to make changes in your long distance carrier only upon verified authorization.
- Demanding a full refund of any fees charged by a slamming company.
- Reporting all slamming immediately to your state’s consumer protection agency.
Thursday, August 14, 2008
Many scam artists attempt to get you to “invest” your money in their “deal” in order to more easily steal the money from you. Such scams include the “Ponzi” scheme, chain letters, pyramid schemes, and much more.
Elizabeth could hardly wait to call her friend Donna about a new investment opportunity. A few months ago one of the members of her church’s social committee had told her about a new high technology start-up company he was involved with. He showed her the projected return on investment from the first year of operation and said that for only a $5,000 investment she could make nearly 67% interest. Elizabeth quickly invested $10,000. She had already received $1,500 of interest in just the first two months. The interest was payable monthly and the initial investment was to be repaid at the end of the first two years. She couldn’t believe her good fortune. At that rate she calculated she would make well over the 67% goal. She was quite skeptical at first, but as the months passed and she regularly received her checks, she became less and less concerned.
Donna didn’t seem to be as interested as Elizabeth expected her to be. In fact, Donna asked a lot of really embarrassing questions that Elizabeth couldn’t answer. Questions such as “Who were the officers and directors of the company?” and “Where was the main office of the company located?” Although Elizabeth wondered about the questions Donna asked, she didn’t worry until six months later when her check failed to appear as scheduled. She called her friend and he assured her that there had been a small computer problem and the checks with be coming very soon. The check was approximately a week late. Two months later the check was late again. She waited a week before she called. Elizabeth dialed the number two times before she realized the number had really been disconnected. She was still not alarmed but she decided to call some of the other investors to see if she could find a new number for the company. Three weeks later she realized she had been scammed. Elizabeth was lucky‑she lost only $3,250. She was the victim of the classic “Ponzi” scheme.
Elements of the investment scam:
Promise of an unusually high return on an investment. The return is “guaranteed,” said to have little or no risk, or touted as practically foolproof.
A lack of detailed information about the details of the investment, including the principals, the type of business, and details concerning finances. Sometimes the scam artist says the information is unavailable because the investment opportunity is so new, but information will be provided “very soon.”
High pressure to invest quickly “before the deal goes away.” The investment is often portrayed as being available only for a very limited time.
Unsolicited contacts about investment opportunities.
In the “Ponzi” scheme, money collected from later investors is used to pay the interest or dividends to earlier investors. Interest is usually paid regularly in short time increments.
In pyramid schemes and chain letters, the “investors” are given an incentive to find more people to participate in the “investment.”
The “Ponzi” scheme takes its name from one of the first people to make huge sums of money using this common fraud. This scheme is similar to the chain letter or pyramid scheme. The scam artist represents that he or she has a “surefire” investment that will bring a very high return. Often returns in excess of 50% or more per year are promised. The scam artist pays the high return to earlier investors using money received from other “investors.” Of course, the first investors are extremely happy with their “investment” because they apparently get the promised high return. They often assist the scam artist in obtaining new “investors” because of their enthusiasm. The Ponzi Scheme differs from a pyramid scheme in that the participants are not offered any direct financial incentive for bringing in other participants. The scam artist plans to leave the country before the investors figure out they have been scammed. Unless the scam artist gets too greedy, he or she can disappear with many thousands of dollars of the “investors” money.
At one time or another nearly everyone has come in contact with the chain letter. Chain letters are illegal and a form of an “investment” scam. Commonly, the chain letter contains a list of names and the victim is asked to put his or her name at the bottom of the list, remove the top name and send, usually, a small amount of money to either the first person or first few people on the list. The victim is also asked to send the letter on to a number of his or her friends. The promise is made that when the victim’s name reaches the top of the list, they will receive a large sum of money in return. Often the letter contains warnings about what will happen to the victim if he or she “breaks” the chain. There are thousands of variations to the chain letter scam, many of them now on the Internet. However, they all are based on receiving an enormous return from a very small effort. The amount of money invested does not change the nature of the chain letter. Even though most people realize that chain letters are illegal, they see very little risk in participating. The victim always feels that there is a chance they will receive a large sum of money. The author has seen people who were desperate for money become involved in the scheme. Although in its simplest form, the chain letter seems relatively harmless, it is a scam nonetheless.
Pyramid schemes are almost universally illegal in the United States. The main difference between a pyramid scheme and the Ponzi scam is that the victims are called “dealers” and the dealers are enlisted to recruit other dealers. The scheme is highly beneficial to those who get into the deal early. The longer the scheme is run and the more “dealers” are enlisted in the organization, the less likely those further down in the pyramid will benefit. Pyramid schemes have been based upon investment opportunities, special product sales, product dealerships, and hundreds of other variations. The profits come from enlistment fees, training fees, and other charges. In a true pyramid scheme, there is no attempt made to appear like a legitimate business. Nothing is sold. The only point of the business is to acquire more dealerships. Pyramid schemes differ from multilevel marketing in that there is no bona fide product or service.
Multilevel marketing commonly refers to a business organization where commissions or payouts occur at two or more levels. Multilevel marketing organizations are generally legal unless they are conducted as illegal pyramid scheme. Network or consumer direct marketing describes a business where success depends on building a distributor network. Proponents of consumer direct marketing attempt to differentiate themselves from multilevel marketing by emphasizing that the distributors are also “consumers.” In California, all multilevel marketing businesses are referred to as “seller assisted marketing plans.” Whatever the terminology, if there is no product or service being sold, the business is probably illegal.
There are no risk-free investments. The higher the supposed return on the investment, the higher the risk. The scam artist relies on the greed of the victim and the assumption that very few investors will actually investigate before they invest.
Protect yourself by:
a. Always investigating before you invest.
b. Asking yourself, if this is such a great investment why isn’t the company getting its own financing and making all the profits itself?
c. Realizing that a legitimate company would allow you time to investigate and review the offer before investing.
d. Requiring all information to be in writing.
e. Investing only in businesses or areas you understand.
f. Identifying all of the people involved in the investment scheme.
g. Consulting with an attorney, an accountant, or other professional concerning the investment.
h. Requiring adequate collateral or other personal guarantees.
i. Requiring that all collateral be appraised by an independent appraiser.
j. Verifying that the company complies with all state and federal licensing requirements, including proper registration of any securities.
k. Requiring that any transfer properties, either real or personal, be handled by an independent escrow agent.
l. Understanding that nearly all Ponzi schemes, chain letters, and pyramid schemes are illegal.
m. Realizing that the size of the investment doesn’t make the scheme either legal or illegal: they are all illegal.
n. Understanding that if there is no worthwhile product or service being sold by the organization, it is probably a scam.
o. Suspecting all investment opportunities that don’t provide detailed information about the company.
p. Knowing that a good deal today will be a good deal tomorrow. Any investment requiring “immediate action” should be highly suspect.