> A Guide to Consumer Scams
INTRODUCTION
There are numerous scams and tricks that are commonly
used to bilk people out of their money. This article
deals with consumer targeted scams. The scammers may
use the telephone or mail to get you to buy a fake
product, invest in a non-viable company, or target you
for bank account or credit card fraud.
A frightening fact about scams is that some of them
are perpetrated by legitimate businesses. Often the
scam is not actually technically illegal, and you may
have little recourse to retrieve your lost time and
money. In many cases, the swindlers will have already
spent your money by the time you realize you have been
ripped off.
According to Ira Lipman, an expert on crime and author
of "How to protect Yourself From Crime," the chances
of successfully recovering any of your lost money are
almost nil when dealing with most common scams. You
have a much better chance of protecting yourself by
taking preemptive steps against being a victim. This
report describes some typical scams and how to avoid
them, as well as giving some basic instructions for
protecting yourself from fraud.
CON ARTISTS
If it hasn't happened already, prepare yourself to
pick up the phone one day and hear the following type
of pitch:
"Good morning, Mr. Johnson. This is Jason Brown of
Global US Internet Radio, Incorporated. Your name came
up on a list of qualified investors who can spot and
act on a great opportunity when they see one. We are
currently creating a new company to take advantage of
this new trend in internet radio communications. I
don't have to tell you how hot this new trend is and
how much money companies like Microsoft, Intel, and
Digital have made overnight with very little initial
investment in similar fields.
"Mr. Johnson, we are inviting special customers like
you to participate as partners and shareholders in
this new venture before the public offering is
completed the day after tomorrow.
"I enjoy dealing with astute, seasoned investors like
yourself. Let me put you down for just ten thousand
shares, at a modest commitment of just $1,000. I
really want you to have a piece of this action, not
only for the sake of making some money on this
sensational deal, but as the first step to creating a
long-term, rewarding relationship with you.
"Let me send a federal express carrier to pick up that
check from you so you don't miss out on this
incredible opportunity. You don't want to take the
chance of missing out on this one!"
Pitches like this one come from fast talking telephone
solicitors in a cheap office crammed with telephones,
called a "boiler room." The first contact is made by a
low-paid individual called an "opener." Once you
express interest in the pitch, you will be turned over
to a more accomplished high-pressure sales artist
known as a "loader." The loader will often add
additional "confidential" embellishments that make the
idea seem plausible and very exciting.
Investors discover, usually too late, that the entire
investment is a hoax. This type of scam is called the
"New Venture" scam. Investment fraud bilks Americans
out of literally hundreds of millions of dollars a
year.
These scams are perpetrated by sophisticated,
experienced, and professional-sounding operators with
temporary addresses located at prestigious Wall Street
addresses, or the equivalent at other financial
centers. This is particularly distressing because
legitimate brokers also operate by phone and have
similar addresses.
INVESTMENT FRAUD
A common type of investment fraud is the "shell game."
Essentially, criminals acquire a new company that is
close to bankruptcy, but who have registered with the
SEC to have their stock publicly traded. They reduce
the equity of the shareholders of the original
corporations, often through a reverse stock split that
allows them to issue new shares.
Using appropriate telephone pitches, the fraud artists
are able to increase the investor base and raise the
price of the stock through trading. When the prices
hit a high point, the stock held by the fraudulent
backers is liquidated, and the price plummets, leaving
investors with a huge loss and a worthless stock. Most
often the con artists abscond with a fortune, spend
all the money, or wind up in prison.
Another typical investment fraud deals with fast-buck
commodities futures. In futures, relatively few
investment dollars can control sizable sums. By their
very nature, futures exercise an almost irresistible
appeal to to the greedy, get-rich-quick investor. What
the average investor doesn't know is that futures
trading is a real sucker's bet, with the likelihood of
turning a profit well below 10 percent.
Land fraud is perhaps the oldest and most enduring
form of investment fraud in America. The concept is
very simple- the swindlers purchase rights to a piece
of junk property at a rock-bottom price. They convince
investors that there is some desirable resource
attached to the property, such as coal , oil, uranium,
etc. In land schemes, a "shill" is often used. A shill
is an "investor just like you" who is really a paid
accomplice of the fraud artists. The shill is
introduced as a satisfied customer who says something
along the lines of "This is a really reputable
company. They doubled my money, and they have been
totally honest with me since day one." Of course, the
"resource" is just a scam. The oil or mineral rights
are useless and the organizers pocket the money.
Possibly the most effective investment scam is the
"ponzi" scheme. Essentially, the operation requires
investors to place their funds in the care of the
operators. Within a few months, or even days, the
investors get back "interest" on their money. The
interest checks keep coming. They get excited and
invest more money! They tell their friends, who, in
turn, invest. Their friends make money, too. Then one
day, the checks stop coming, and the investors never
see their initial capital again.
What the investors didn't know is that the "interest"
they were getting was really just a portion of their
original investment money, or someone else's. Some of
the first investors may even make more interest back
than their initial principal. The problem is that
eventually, the operators take most of the money and
leave town, or they run out of cash after they stop
getting new investors.
The problem with ponzi schemes is that they can start
out as valid business operations! They can even be
making PART of the "interest" through legitimate
investments or business. It can be very difficult to
spot a ponzi scheme until it's too late.
Here are some tips for avoiding investment scams:
* If an investment sounds like an incredible deal, it is
probably a scam; do some research before making any
commitment.
* Never make any commitment to an unknown broker or
brokerage who calls you on the phone - it is likely to
be a boiler room operation.
* When opening any investment account, request evidence
that the broker and the firm are licensed. Obtain the
firm's recent financial statements, and be cautious of
doing business with those that have net capitalization
under $1 million.
* Be skeptical of substantial stock discounts and
"urgent" deals that require you to invest money
"immediately".
catalogs.
OPPORTUNITY SCAMS
Opportunity scams are frequently perpetrated against
those with little money to lose. Typically, these
scams promise you an incredible product at a great
price, a fantastic "work at home" opportunity, or a
"free prize." They are all characterized by the fact
that you have to pay money to someone to get what you
are promised. Frequently, you are promised
information, or an informational pamphlet. Here are
some examples of opportunity scams:
CHAIN LETTERS
A chain letter is a "get rich quick" scheme that
promises that your mail box will soon be stuffed full
of cash if you decide to participate. You're told you
can make thousands of dollars every month if you
follow the detailed instructions in the letter.
A typical chain letter includes names and addresses of
several individuals whom you may or may not know. You
are instructed to send a certain amount of
money--usually $5--to the person at the top of the
list, and then eliminate that name and add yours to
the bottom. You are then instructed to mail copies of
the letter to a few more individuals who will
hopefully repeat the entire process. The letter
promises that if they follow the same procedure, your
name will gradually move to the top of the list and
you'll receive money -- lots of it.
There's at least one problem with chain letters.
They're illegal if they request money or other items
of value and promise a substantial return to the
participants. Chain letters are a form of gambling,
and sending them through the mail (or delivering them
in person or by computer, but mailing money to
participate) violates Title 18, United States Code,
Section 1302, the Postal Lottery Statute. (Chain
letters that ask for items of minor value, like
picture postcards or recipes, may be mailed, since
such items are not things of value within the meaning
of the law.)
Recently, high-tech chain letters have begun
surfacing. They may be disseminated over the Internet,
or may require the copying and mailing of computer
disks rather than paper. Regardless of what technology
is used to advance the scheme, if the mail is used at
any step along the way, it is still illegal. The main
thing to remember is that a chain letter is simply a
bad investment. You certainly won't get rich. You will
receive little or no money. The few dollars you may
get will probably not be as much as you spend making
and mailing copies of the chain letter.
One scam witnessed by the author of this article was a
very clever chain letter that contained a reference to
a publishing company that would reproduce the chain
letter for you so you could send it out to thousands
of people, supposedly at a great price and on recycled
paper. A little background check revealed that the
"publishing company" was owned by the originator of
the letter! Additionally, their rate for reproducing
the letter were much more expensive than competitive
rates at local print shops. Just imagine all the money
this con artist made on people who were gullible
enough to pay him to reproduce his chain letter!
Chain letters don't work because the promise that all
participants in a chain letter will be winners is
mathematically impossible. Also, many people
participate, but do not send money to the person at
the top of the list. Some others create a chain letter
that lists their name numerous times--in various forms
with different addressee. So, in reality, all the
money in a chain is going to one person. Do not be
fooled if the chain letter is used to sell inexpensive
reports on credit, mail order sales, mailing lists, or
other topics. The primary purpose is to take your
money, not to sell information.
"Selling" a product does not ensure legality. Be
doubly suspicious if there's a claim that the U.S.
Postal Service or U.S. Postal Inspection Service has
declared the letter legal. This is said only to
mislead you. Neither the Postal Service nor Postal
Inspectors give prior approval to any chain letter.
Participating in a chain letter is a losing
proposition.
Turn over any chain letter you receive that asks for
money or other items of value to your local postmaster
or nearest Postal Inspector. Write on the mailing
envelope of the letter or in a separate transmittal
letter, "I received this in the mail and believe it
may be illegal."
SCHOLARSHIP SCAMS
- "This scholarship is guaranteed or your money back."
No one can guarantee that they'll get you a grant or
scholarship. Refund Guarantees often have conditions
or strings attached. Get refund policies in writing -
before you pay.
- "You can't get this information anywhere else."
There are many free lists of scholarships available.
Check with your school or library before you decide to
pay someone to do the work for you.
- "May I have your credit card or bank account number to
hold this scholarship?"
Don't give out your credit card or bank account number
on the phone without getting information in writing
first. It may be a set-up for an unauthorized
withdrawal from your account.
* "We'll do all the work."
Don't be fooled. There's no way around it. You must
apply for scholarships or grants yourself.
* "The scholarship will cost some money."
Don't pay anyone who claims to be "holding" a
scholarship or grant for you. Free money shouldn't
cost a thing.
* "You've been selected" by a 'national foundation' to
receive a scholarship, or "You're a finalist" in a
contest that you never entered.
Before you send money to apply for a scholarship,
check it out. Make sure the foundation or program is
legitimate.
FEDERAL JOB FRAUD
You don't have to pay for information about job
vacancies with the U.S. Government or U.S. Postal
Service. But many Americans are victimized by scam
artists who sell information about federal job
opportunities. These scam artists advertise in the
classified sections of newspapers and offer - for a fee
- to help job seekers find and apply for federal jobs.
Some companies try to confuse consumers by using names
like the "U.S. Agency for Career Advancement," or the
"Postal Employment Service," which sound like federal
agencies.
Scam artists may lie about the existence of federal
job openings in your area. For example, the Postal
Service has few vacancies for permanent full-time
jobs. Postal Service hiring takes place through 85
district offices at the local level and when
positions are announced, they often are advertised a
very short time. Your local post office is the best
source of information about current openings.
Information about U.S. government jobs is available
free. Federal agencies and the U.S. Postal Service
never charge application fees, sell study guides for
job tests, or guarantee that an applicant will be
hired. If positions require a competitive examination
- and many do not - hiring agencies typically offer
free sample questions to consumers who sign up for
the exam.
The Federal Trade Commission and the U.S. Office of
Personnel Management say certain techniques usually
can tip off consumers to job scams:
* Classified ads or oral sales pitches that imply an
affiliation with the federal government, guarantee high
test scores or jobs, or state that "no experience is
necessary."
* Ads that offer information about "hidden" or
unadvertised federal jobs.
* Ads that refer to a toll-free phone number. Often in
these cases, an operator encourages you to buy a
"valuable" booklet containing job listings, practice
test questions, and tips for entrance exams.
* Toll-free numbers that direct you to other
pay-per-call numbers for more information. Under federal
law, any solicitations for pay-per-call numbers must
contain full disclosures about cost. Also, the
solicitation must make clear if there is an affiliation
with the federal government. You must have a chance to
hang up before you incur any charges.
OTHER ILLEGAL ACTIVITIES
According to the FTC, the following activities are
illegal. You should be alert to these signs of scams.
It is illegal...
* For a telemarketer to call after you have asked not to
be called.
* For a telemarketer to call you after 9 p.m., and
before 8 a.m.
* For telemarketers to neglect to tell you promptly, at
the beginning of the call, the company name and what
they are selling.If it's a prize promotion, the caller
must tell you that no purchase or payment is necessary
to win.
* For a telemarketer to misrepresent anything about the
offer. * For a telemarketer to ask you for payment
before telling you the total cost of goods, whether a
sale is final, the odds of winning a prize, and any
restrictions on getting the prize.
* For a telemarketer to withdraw money from your
checking account without getting your verifiable
permission in advance. The new regulation gives you the
right to request a written form outlining all conditions
of such withdrawals before you agree. NEVER give verbal
authorization or disclose your checking account number
over the phone.
* For a credit repair service or loan promotion to
request a fee before providing the service. Firms that
offer to recover your losses or get your money back
cannot charge an up front fee for doing so.
THE COOLING OFF RULE
If you buy something at a store and later change your
mind, you may not be able to return the merchandise. But
if you buy an item in your home or at a location that is
not the seller's permanent place of business, you may
have the option. The Federal Trade Commissions (FTCs)
Cooling-Off Rule gives you three days to cancel
purchases of $25 or more. Under the Cooling-Off Rule,
your right to cancel for a full refund extends until
midnight of the third business day after the sale.
The Cooling-Off Rule applies to sales at the buyers
home, workplace or dormitory, or at facilities rented by
the seller on a temporary or short-term basis, such as
hotel or motel rooms, convention centers, fairgrounds
and restaurants. The Cooling-Off Rule applies even when
you invite the salesperson to make a presentation in
your home.
Under the Cooling-Off Rule, the salesperson must tell
you about your cancellation rights at the time of sale.
The salesperson also must give you two copies of a
cancellation form (one to keep and one to send) and a
copy of your contract or receipt. The contract or
receipt should be dated, show the name and address of
the seller, and explain your right to cancel. The
contract or receipt must be in the same language that's
used in the sales presentation.
Some Exceptions
Some types of sales cannot be canceled even if they do
occur in locations normally covered by the Rule. The
Cooling-Off Rule does not cover sales that:
* are under $25;
* are for goods or services not primarily intended for
personal, family or household purposes. (The Rule
applies to courses of instruction or training.); * are
made entirely by mail or telephone;
* are the result of prior negotiations at the sellers
permanent business location where the goods are sold
regularly;
* are needed to meet an emergency. Suppose insects
suddenly appear in your home, and you waive your right
to cancel;
* are made as part of your request for the seller to do
repairs or maintenance on your personal property
(purchases made beyond the maintenance or repair request
are covered).
Also exempt from the Cooling-Off Rule are sales that
involve:
* real estate, insurance, or securities;
* automobiles, vans, trucks, or other motor vehicles
sold at temporary locations, provided the seller has at
least one permanent place of business;
* arts or crafts sold at fairs or locations such as
shopping malls, civic centers, and schools.
How to Cancel
To cancel a sale, sign and date one copy of the
cancellation form. Mail it to the address given for
cancellation, making sure the envelope is post-marked
before midnight of the third business day after the
contract date. (Saturday is considered a business day;
Sundays and federal holidays are not.) Because proof of
the mailing date and proof of receipt are important,
consider sending the cancellation form by certified mail
so you can get a return receipt. Or, consider hand
delivering the cancellation notice before midnight of
the third business day. Keep the other copy of the
cancellation form for your records.
If the seller fails to provide cancellation forms, you
can write your own cancellation letter. It must be
post-marked within three business days of the sale.
You do not have to give a reason for canceling your
purchase. You have a right to change your mind.
If You Cancel
If you cancel your purchase, the seller has 10 days to:
* cancel and return any promissory note or other
negotiable instrument you signed;
* refund all your money and tell you whether any product
you still have will be picked up; and return any
trade-in.
Within 20 days, the seller must either pick up the items
left with you, or reimburse you for mailing expenses, if
you agree to send back the items.
If you received any goods from the seller, you must make
them available to the seller in as good condition as
when you received them. If you do not make the items
available to the seller -- or if you agree to return the
items but fail to -- you remain obligated under the
contract.
Problems
If you have a complaint about sales practices that
involve the Cooling-Off Rule, write: Correspondence
Branch, Federal Trade Commission, Washington, D.C.
20580. The Rules complete name and citation are: Rule
Concerning Cooling-Off Period for Sales Made at Homes or
at Certain Other Locations; 16 CFR Part 429.
You also may wish to contact a consumer protection
office in your city, county, or state. Some state laws
give you even more rights than the FTCs Cooling-Off
Rule, and some local consumer offices can help you
resolve your complaint.
In addition, if you paid for your purchase with a credit
card and a billing dispute arises about the purchase
(for example, if the merchandise shipped was not what
you ordered), you can notify the credit card company
that you want to dispute the purchase. Under the Fair
Credit Billing Act, the credit card company must
acknowledge your dispute in writing and conduct a
reasonable investigation of your problem. You may
withhold payment of the amount in dispute, until the
dispute is resolved. (You are still required to pay any
part of your bill that is not in dispute.) To protect
your rights under the Fair Credit Billing Act, you must
send a written notice about the problem to the credit
card company at the address for billing disputes
specified on your billing statement within 60 days after
the first bill containing the disputed amount is mailed
to you.
If the 60-day period has expired or if your dispute
concerns the quality of the merchandise purchased, you
may have other rights under the Act. If you have
questions about the Fair Credit Billing Act, write for
the free brochure Fair Credit Billing. Write: Public
Reference, Federal Trade Commission, Washington, D.C.
20580.
GENERAL TIPS FROM THE FTC
How to avoid Fraud
* Know the company with which you plan to do business.
* A reputable company will be pleased to send you
information. A fraudulent promotion often requires an
immediate response.
* Never reveal account numbers, partial account numbers,
or any other personal identification to strangers,
especially over the phone.
* Never send cash by private carrier.
* Required overnight delivery of checks or money orders
is an indication of fraud. Frauds which use the mail are
investigated by federal agents.
* Never pay up-front fees for services which normally
operate on a commission basis or charge interest.
Employment agencies, real estate agents, and travel
agents generally operate on a commission basis. Lenders
charge interest rates.
* When anyone tells you that you have won a prize, hold
on to your money. Any time you are told you have won a
prize and have to pay money, refuse the prize.
SOME PORTIONS OF THIS REPORT ARE EXCERPTS FROM THE FTC
"FACTS FOR CONSUMERS" REPORT.
For More Information or to report a consumer issue,
contact the FTC at:
http://www.ftc.gov/
or by mail at:
FTC Bureau of Consumer Protection Washington, DC 20850
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