CONSUMER BEWARE! - Beverly Bowers, CFP®

At least once a week I receive an email or cell phone message that sounds like a scam and I bet you do, too. Despite television announcements, magazine and newspaper articles, and warnings posted in public places, scams and other fraudulent schemes take a toll.

Investment Scams

When I was an advisor in a brokerage firm, I was referred to an elderly woman with a sum of money to invest. As I recall it was about $100,000. After talking with her, I became very concerned. Apparently, she had also been contacted by someone associated with her church. That person guaranteed her a very nice return on her investment, a higher rate than was currently attainable through any investment or mix of investments of which I was aware. That immediately made me skeptical—a guarantee of a higher rate than publicly available sounds like an investment that is too good to be true.

After we talked for a while and I started to gain her trust, I suggested that she might want to double check the person’s background and get more information about the investment, and then we would talk again. However, when I contacted her again it was too late. She had already invested her money. To give her credit, she did talk with church friends, and she did read the pamphlet given to her, but she was charmed. She was not savvy enough to ask the hard questions. Unfortunately, I read some time later that several people associated with her church had been caught in a Ponzi scheme and lost all their money. That is an example of an investment scam. Investment scams promise high returns, without financial risk.

Scams and fraudulent schemes happen hundreds of times every day all over our country. In fact, I was inspired to write this blog after reading about two brokers in a large, well-known firm whose grandmother was awarded millions of dollars in a FINRA settlement because they mishandled her account. Both the grandsons and the firm were liable. They breached their fiduciary duty—they made inappropriate risky investments and one grandson even went as far as forging her signature.

And don’t forget Bernie Madoff and Enron. Losses from those debacles are estimated at $65 and $74 billion, respectively. Just those two! Yes, they resulted in prison time for the key players, but investors were not fully repaid, and it is heart breaking to read of those who lost money they had counted on for retirement.

Other Common Scams

The website, usa.gov, lists the following types of scams: phone, COVID-19, government grant, lottery and sweepstakes, housing, IRS, ticket, banking, investment, and charity. Common frauds are identity theft, pyramid schemes, Ponzi schemes, and census-related fraud. Let’s look at some of those scams and frauds, courtesy of usa.gov unless otherwise noted.[i]

A joint poll by Truecaller and The Harris Poll in March 2021, found 59.4 million Americans lost money to phone scams over the prior year to the tune of $29.8 billion. About 19% of those victims fell victim more than once and the average reported loss was $502, up significantly from the prior year. Despite common perception, younger Americans ages 18-44 were the most susceptible to phone scams. Across generations, about 59.4% of men reported being scammed, compared to just 38.3% of women.[ii] But no one is immune.

Telephone scammers try to steal your money or personal information. Scams may come through phone calls from real people, robocalls, or text messages. Callers often make false promises, such as opportunities to buy products, invest your money, or receive free product trials. They may also offer you money through free grants and lotteries. Some scammers may call with threats of jail or lawsuits if you don’t pay them.

Ticket selling scams happen when a scammer uses tickets as bait to steal your money. The scammer usually sells fake tickets, or you pay for a ticket, but never receive it. They are common when tickets for popular concerts, plays, and sporting events sell out.

Ponzi and pyramid schemes are similar in that both involve existing investors getting paid by the contributions of new investors. Ponzi schemes typically offer a high rate of return with new investors funding established investors. Bernie Madoff perpetrated a Ponzi scheme, and my elderly friend was a victim of a Ponzi scheme. Pyramid schemes, on the other hand, require members to recruit people into the group in exchange for fees. Many pyramid schemes offer products for sale, but the “real” earnings come from recruiting other people who pay the membership fee and who, in turn, recruit other people to do the same, and so on.

When either a property owner or potential tenant misrepresents themselves, it is a housing scam. Rental scams may also misrepresent the terms and availability of a rental property. Fake ads and fake responses to rental ads can hurt both tenants and property owners. For several summers we rented a beach property in California for our sons and their families to join us for a week. One year when I called to book the property we loved, I was told to beware that someone might show up claiming to have rented the same property for the same week. This had just occurred. Apparently, a scammer posted a fake ad offering the property for rent and received payment. There was a real scene when two renters arrived to claim the property for the same week. Thankfully, we had no problem.

IRS imposter scams occur when someone contacts you pretending to work for the IRS. The imposter may contact you by phone, email, postal mail, or even a text message. There are two common types of scams:

Tax collection – You receive a phone call or letter, claiming that you owe taxes. They will demand that you pay the amount immediately, usually with a prepaid debit card or wire transfer. They may even threaten to arrest you if you don’t pay.
Verification – You receive an email or text message that requires you to verify your personal information. The message often includes a hyperlink phrase which reads “click here” or a button that links you to a fraudulent form or website.

Identity (ID) theft happens when someone steals your personal information to commit fraud. The identity thief may use your information to apply for credit, file taxes, or get medical services. Those acts can damage your credit status and cost you time and money to restore your good name.

Government grant scammers try to get your money by guaranteeing you a grant for costs like college or home repairs. They ask for your checking account information. With it, they say they will “deposit the grant money into your account” or withdraw a “one-time processing fee.” In reality, government grants are rarely awarded to individuals. They usually go to state and local governments, universities, and other organizations. The money is awarded to help pay for research and projects that will benefit the public.

Phishing Scams

Usually, phishing is done by email and those emails look real. A phishing email could come from someone you know those account has been hacked. Or the email could be made to look like it came from a company or organization you know and trust and that is called spoofing. The hackers are seeking access to sensitive personal information. I once received an email claiming that the sender wanted to share a windfall with me. I only had to send them my account information and respond within a certain length of time. Bet you have seen a variation of this, and it can come via text message as well.

Gift Cards

This scam is popular, and I would not be surprised if you don’t have a similar story to tell.

This gift card scam involved the parents of one of my firm’s clients. The parents were contacted by phone and told their grandchild, a young adult, was in jail in a foreign country. They were terrified but were not allowed to talk with the grandchild and were told that nothing would happen to the grandchild if they followed specific instructions. They were not to contact anyone, were instructed to buy gift cards to pay for his fine and other costs, and then wait for a call back at a specific time at which they would provide the card information to the scammers. Then their grandchild would be released. The grandparents followed the instructions. The scammers called back and were given the gift card numbers.

About that time, the daughter arrived at her parents’ house. Her parents were very upset and asked about their grandchild. The grandchild, as it turns out, was not in a foreign country. The grandparents were shocked and admitted what they had done. The daughter contacted the gift card companies and explained the situation. One of the gift cards had not been spent, the card was blocked, and the money, after a very long process and lots of paperwork, was refunded to the grandparents. But one gift card had been activated and spent and nothing could be done. Lesson learned!

These examples of common scams do not come close to covering all the types, and new variations appear all the time. Scammers are clever and, although I do not live in fear nor do I wish that for you, it pays to be a little skeptical, especially if it sounds too good to be true. Do not click on any links or follow any instructions without checking thoroughly. Ask questions if you are contacted by phone or just hang up if it sounds fishy. If an email look suspicious, delete it. I especially look for bad grammar and poor English—not a good sign.

Be smart, be vigilant, but beware!

~Bev Bowers, CFP®