A lesson in financial self-defense.
Whether new or old, con artists prey upon the same vulnerabilities in our human nature. We can better protect ourselves by first knowing what kind of fraudulent operations exist and how they function.
Affinity fraud: According to the Securities and Exchange Commission, affinity fraud is an investment scam that preys on members of groups, such as religious or ethnic communities, professional groups or the elderly, by exploiting the trust and friendships that exist within the group. Victims abandon their natural sense of caution and good judgment because the swindler pretends to be, or may be, one of the group.
The most common affinity scams are pyramid schemes, which create the false illusion that an investment program is successful by taking money from a new investor and using it to make payments to previous investors.
Prime bank schemes: Victims are taken in by the lure of a very high-yield, tax-free return that, supposedly, is only available to extremely wealthy individuals through offshore trades of bank notes. You are required to execute confidentiality agreements and not consult an attorney; accountant or financial planner. The secrecy is exalting and makes you feel exclusive and important.
There are no such legitimate programs. Once your money is turned over, it is gone--the only person enjoying a high-yield, tax-free return is the con artist.
Personal information scams: We've all heard of identity theft--thieves steal your private financial information and use it to open credit cards in your name, buy a car, get a driver's license, open bank accounts and write bad checks. They can steal your information directly by taking your wallet, checks, financial statements or credit card receipts from your mailbox or trash can. Thieves can get the same information indirectly by hacking into computers, stealing client data while on the job or diverting your mail with a change-of-address form.
Frequently, victims will give an unscrupulous person their private financial information simply because they need help. The paperwork that senior citizens must deal with for medical insurance claims and prescription benefits is overwhelming. Con artists may use the phone or e-mail to pose as the agent of a legitimate health or Life insurance company. They may offer to fill out forms, file claims, facilitate payments or straighten out a fake problem with your account, meanwhile asking to verify your Social Security number or your bank account number.
There are ways to protect yourself. Among them:
* Discuss with others. Many investors have been spared tragedy because they had the good sense to ask an accountant, an attorney or a financial planner to review and evaluate an investment before getting into it. A licensed financial adviser can help you determine if the investment is suitable for you and your personal financial goals, and an attorney may see warning signs that you have missed regarding its legitimacy.
* Insist on written information on an investment product--and read it carefully. Ask tough questions and check out everything. Be very skeptical of an investment that you must keep confidential and is not in writing.
* Never let someone pressure you to make an immediate decision. Wise financial decisions take time to investigate and evaluate
* Beware of strangers who guarantee spectacular profits and quick returns. Successful con artists can sound very professional and make the riskiest and strangest deal sound safe and legitimate.
* Never give out your personal financial information unless you have initiated the contact. Invest in a shredder to destroy credit card offers and any other papers you discard that contain private information.
* Report fraud. Frequently, victims keep quiet because they feel humiliated for falling for the scam and don't want their family or friends to find out. Reporting a scheme will help others to not fall prey.
The Web sites for the Federal Trade Commission, the Securities and Exchange Commission and the North American Securities Administrators Association contain updated information about financial scams.
Donald E. Sommese, a certified financial planner, works in the Nashua office of Morgan Stanley. He can be reached at 603-881-3300.
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|Title Annotation:||Watching Your Money|
|Author:||Sommese, Donald E.|
|Publication:||New Hampshire Business Review|
|Date:||Feb 13, 2009|
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