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The Best Little Money Book

Tip of the Month

Financial Fraud – What to do?

If you are the victim of financial fraud, you will find information of what steps to take to correct this situation at SaveAndInvest.org.  When you go to this site, type in “checklists” in the search area on the top right and lists will come up for the different areas of financial fraud that are discussed in this TIP.

The following information about avoiding fraud comes from a webinar presented to the Association of Financial Counseling and Planning (AFCPE) members by the National Center for Victims of Crime and the FINRA Investor Education Foundation. FINRA is an organization that gives consumers investor protection by regulating broker-dealers.

Investment Fraud

  • Research has shown that 42% of people who responded to what turns out to be a scam believe that they will be able to get 100% return on their investment. But if they looked at the “investment” carefully, they would recognize that what is being presented is a red flag. Scammers use compassion, fear and affinity to get someone to agree to be part of the investment scam.
    • Red-flag scams make you think you will be getting a great return on your investment, but, in reality, you will not. You will likely lose your entire investment.
    • They make you believe that others have already invested in the product and that you have limited time to get in.
  • When the scam presentation is given to people over 65 years of age, about a third will lose money. People in their 40s tend to recognize the scam more often and don’t invest.
  • People lose $50 billion a year to investment fraud when they participate in offers that deal with coins, investments, sweepstakes, lotteries and credit card offers.
  • Typical investment fraud scams include advance fees, “pump and dump,” Ponzi schemes and promises of lofty returns. Often, a free dinner is offered.
    • According to Wikipedia, “pump and dump” is a securities fraud where stock has an inflated price and when the stock is dumped the price falls and the investor loses money. This used to be done with cold calls but now the Internet is an easier way to attract people to the scam.
  • We recommend that you be careful. The marketing materials may not have true information and the presenter may not be an investment professional. Check to be sure the person is licensed.

Identity Theft

  • Use the FTC website IdentityTheft.gov to report identity theft and for help on how to recover. At this site you will tell them what happened, you will receive information on how to work on a recovery plan that you can put into action.

Mortgage Lending

  • In this area the problem can be the homebuyer, the lender or both. False information is provided in several areas – overvalued appraisals, guaranteed low interest rates and the homebuyer who reports inflated income.

Marketing Fraud

  • False promises of cash prizes or services that come through the mail, phone, e-mail, popup ads and infomercials.

Other Interesting Information about financial fraud.

  • Victims of investment fraud are mostly males who are financially literate, have college educations and are either retired or about to retire.
  • Lottery fraud victims are usually single or older people who are less educated and people who do not make a lot of income.
  • Mass marketing scams tend to target younger adults.
  • Family members, affinity groups, trusted advisors or strangers can all be scammers.
  • There is a non-financial cost of fraud in the form of severe stress, anxiety, lack of sleep and depression.
  • To help prevent fraud, shred documents, don’t give out personal information and monitor your credit report at AnnualCreditReport.com. Do not use www.freecreditreport.