Thursday, January 30, 2014


Front Door Scam Caption

We’ve all made bad investments before. Something sounds like a great idea, you’re so excited, and then, uh, it doesn’t work out. It is common to feel shame when you’ve made a bad call. Shame is a powerful emotion. You don’t want to tell anyone. You’re embarrassed. Everything feels murky. You’re confused about
what went wrong. You don’t want people to know. And that, my friends, is why con artists thrive. 

You would think that con artists have to be incredibly smart and creative. In the movies the con artist comes up with something so tricky that the entire audience is shocked at the twist in the end. But the reality is actually pretty mundane. Because victims often keep quite about what happened to them, many types of cons are repeated over and over again. 



1.  The Pigeon Drop

Two strangers tell you they have found a large sum of money or other valuables. They may even show you a bag full of cash.  They tell you they will split the good fortune with you if everyone involved puts up “good faith” money. Or sometimes your money is needed to pay some professional (like a lawyer) a fee to hold the cash for a week or two to make sure it is “clean” and no one can claim it.  You turn over your cash, and you never see your money, the helpful strangers, or the professional again.

2.  The Bank Examiner

A so-called bank official asks for your help to catch a dishonest teller. He asks you to withdraw money from your account and turn it over to him so he can check the serial numbers. You do and you get a receipt, but your cash is gone. No legitimate bank official would ever ask you to withdraw your money.

3.  Funeral Chaser

Shortly after the death of a relative, someone delivers a leather-bound Bible that your deceased relative allegedly ordered. Or you get a bill in the mail for an expensive item on which you must make the payments. The Funeral Chaser uses obituary notices to prey on bereaved families. Remember, you are not responsible for anyone else’s purchases, and all legitimate claims will be settled by the estate in probate.

4.  Bargains that Aren't Bargains

A "free" inspection uncovers needed repairs that will cost thousands of dollars. Or a contractor comes to your home and offers a special half-price deal on a roof because he has “extra materials" from another job. These are favorite tricks of dishonest firms or individuals who victimize homeowners.  Some tips:

  • Always get several estimates for any major work, and don’t allow yourself to be pressured into accepting a one-day-only offer. 
  • Ask for references and check them out. Verify that the names, addresses, and phone numbers provided as references are legitimate. They could be giving you the phone number of a friend of theirs. 
  • Get a written contract, and make sure you understand its provisions.
  • Never pay for work in advance. Withhold payment until the job is completed. Pay by check, not cash.

5.  Charity Rackets

The cause sounds worthy and the solicitor is sincere, but it's a charity you've never heard of, or its name sounds like that of a well-known charitable group. Before you give:

  • Ask for identification on both the charity and the solicitor.
  • Find out the charity's purpose, how funds are used, and if contributions are tax deductible.
  • Ask what percentage of your donation goes toward the cause and what percentage goes toward administrative costs.
  • Call the State Department of Consumer Affairs to see if they are authorized to solicit in your state.
  • Never let them pressure you into donating.
  • If they are a legitimate organization, they can wait for you to make an educated decision. If you are not satisfied with the answers and feel something isn’t quite right, don’t give.

6.  The Pyramid Scheme

Someone offers you a painless way to make money. You invest a certain amount and solicit others to do the same. They then solicit others, and so on...like a chain letter. This is the classic Pyramid Scheme. Sometimes the initial investors are paid a small dividend, but when the pyramid crashes—and it always does--everyone loses, except the person at the top who has just skimmed off everyone's money.

Regardless of the name given, pyramid schemes are illegal. It is usually implied or stated that the scheme is perfectly legal and has been approved by an attorney. In fact, it has been represented by promoters of such schemes that the Attorney General has declared the scheme legal. These assertions could not be further from the truth.

Organizers of the schemes typically avoid referring to them as pyramids.  You can tell you are dealing with an illegal pyramid scheme if in order to achieve the promised profits, a continuous chain of participants must be recruited. The scheme soon runs out of new participants and the house of cards comes tumbling down. 

Here are two forms of Pyramid Schemes that are really common right now:

The Women Helping Women Scheme

ALERT:  This scheme is so pervasive that I get more emails from people with legal questions related to these “gifting circles” than any other legal topic.

In recent years, there have been “empowering” techniques used by a new pyramid scheme in the called “women helping women.” Other names for this scheme include:
  • Women Empowering Women
  • The Gifting Club
  • Women Gifting Women
  • Circle of Friends
  • Gifting Circle
I wrote a whole post analyzing this type of woman to woman scheme including links to great calculators you can use to analyze whether or not you will ever get paid.  Whatever it is called, it is probably just a pyramid scheme with lipstick on.

The Dinner Party Scheme

In the Dinner Party scheme, which is yet another flavor of pyramid scheme, individuals are invited to a metaphorical table. Guests are solicited for as "little" as a few hundred dollars or as much as $5,000 (at the "appetizer" or "soup and salad" level). At the “dessert” level, they promise an inflated payoff, and guests are enticed with stories alleging a profit return in as little as a month.  Like any other pyramid scheme, the whole thing falls apart quickly and the “dinner guests” are left with empty spaces in their wallets.

7.  The False Good Samaritan

For those times when mugging a mark isn’t enough, there’s always the false good Samaritan scam. In this tried and true scheme, two con artists work in tandem with one posing as a mugger who steals a mark's wallet and the other posing as the good Samaritan who chases the mugger down and recovers the stolen item. The hero then returns the wallet to the mark in anticipation of being rewarded with money, which he’ll share with his partner later.  I’m not saying that you shouldn’t reward good behavior, but unfortunately the false good samaritan scam is out there.

8.  The Beijing Tea Con

Unfortunately, I can personally attest that this con is not localized to China and is, in fact, quite international.  An oldie but a goodie, I heard that the Beijing tea con generated a small fortune during China’s 2008 Summer Olympics. This scam is generally perpetrated by a very helpful local (often attractive and female if you are male) who befriends a tourist over the course of several hours and invites them to a traditional tea ceremony (or some other insider local thing). The tourist, who is never shown a menu or prices, samples a small amount of tea, just to be polite, and at the end of the ceremony he is given an exorbitant bill. Not wanting to appear rude, the tourist invariably pays for his lesson about the perils of tourism. The con artists later share their profits with the owner of the tea house, for whom they’ve been working all along. The Beijing tea con has several other notable variations which also involve lectures, art galleries, live shows, and, in my case, some not-so-fabulous Moroccan spices.

8.  Phishing

Email has given con artists a whole new way to prey upon the public, and one of their favorite scams is phishing, a malicious form of computer fraud conducted for the purposes of information or identity theft. Phishing uses e-mail messages that claim to come from legitimate organizations, such as online banks, social networking sites, auction sites or IT administrators, and asks users to provide sensitive information, including passwords, usernames and account details. Because these messages look authentic, up to 20% of all recipients respond to them, resulting in identity theft and dire financial losses. Phishing is a particularly effective low-risk scam because it allows con artists to connect with millions of potential victims at a time while maintaining a high level of anonymity.  If you receive an emil from your bank asking you to “log in” or update your password call your bank to make sure they sent the email.  It’s probably a phishing scam.

9.  Predatory Lending

Over the last several years, our nation has made progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lending practices strip borrowers of home equity and threaten families with foreclosure.  If your too-good-to-be-true loan has turned into a nightmare check out these loan fraud tips from HUD.

10.  The Ponzi Scheme

A Ponzi scheme is similar to a pyramid scheme, but is controlled by one central figure. Rather than a business opportunity, a Ponzi scheme involves an esoteric investment vehicle with an unreasonably high rate of return.  Early investors are paid by the investments of later investors.  But sham transaction records encourage them to believe that the investment itself is actually generating the promised rate of return.  The victims tend to reinvest their “profits” in order to watch their earnings multiply.

The scheme was named for Charles Ponzi, who became famous for using the technique to defraud investors in the early 20th century.

11. The Wealthy Prisoner Scam

The Wealthy Prisoner is a fraud in which the con artist convinces a mark that he is in correspondence with a wealthy aristocrat who is being held in a prison under a false identity. The prisoner cannot reveal his identity to his jailors without facing serious consequences, of course. The con artist persuades the victim to supply some money to secure the prisoner’s release or maybe to help transfer the money, with the assurance that he will be rewarded generously when the prisoner returns. This con has been popular since the beginning of the 20th century, but it’s still going strong as the ubiquitous Nigerian money transfer fraud. Often this scheme involves asking the victim to do something a little illegal (like not report the windfall to the tax authorities)— this is another method the con man has to keep you silent.  You might feel like going to the cops is admitting your own involvement in a crime.  Consider yourself warned.

12.  Who’s Who Scam

Operators of fraudulent "Who's Who" directories offer listings or "membership" to purchasers who are often unaware of the illegitimate nature of the directories in question. The title “Who’s Who” is in the public domain, and thousands of Who’s Who compilations of varying scope and quality have been published by various authors and publishers.  Just remember: if you have to pay it probably isn’t much of an honor.



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