Financial Fraud: 6 Simple Steps to Protect Yourself - How to Avoid Common Fraud Schemes

by Dr. Scott Brown, Advisory Panelist
Financial fraud doesn’t start out ugly…
It all began in 1994, when one of my brother’s college buddies began talking about the big checks his girlfriend was receiving as a member of a hot, new Multi-Level-Marketing “opportunity.” His friends joined and soon convinced others to enter. Business was booming.
Then the money stopped.
Like many of these stories, the company went under - its investors and many of its employees were out countless millions - many losing more than just money.
And now I had the opportunity to sit down with the founder of one of these debacles. One who had wantonly misspent revenues on such extravagances as chartered corporate jets to Paris and Friday lobster dinners.
Before I blew him off entirely, I realized that this was a rare opportunity to get into the mind of a fraudster. I said “yes” to Randy’s visit and was soon sitting in front of him.
He’d flown down to Puerto Rico to try to coax me into joining him in his next scheme. I welcomed the opportunity to understand the mental wiring of a financial criminal.
Unlike this meeting, where I could see the culprit face-to-face, most Americans never get to meet the person who is trying to scheme them.
Financial Fraud - Always Such Nice, ‘Honest’ People
He explained that he didn’t begin in financial fraud, but that he started as a salesman for a penny stock “pump and dump” scheme in New York. When it ended, he’d made a lot of money as a brilliant - yet dishonest - salesman for a dishonest business.
He was soon invited into a vitamin scheme preying on financially unsophisticated elderly people where the FBI temporarily locked him up. In the federal penitentiary he learned that it was easier to steal money from the public through Multi-Level Marketing since intentional fraud would be re-interpreted by bankruptcy courts as “miss-management.”
As an investor and consumer you’ll be bombarded by all sorts of “opportunities” that come your way - from any number of unexpected sources. It may be your barber or hairdresser who’s just learned of a “hot” opportunity.
It may be an old friend from college.
Each “opportunity” will have a reasonable story. The fraudsters will have all sorts of evidence to bolster their “sterling” reputation. But that’s just the start of the bait they’ll dangle in front of you.
Making things even harder, the friend or colleague that contacted you will have already been pulled into the con’s web of lies. As an unsuspecting promoter, they’ll express concern or even anger over your disbelief. But you’ll lose your you-know-what if you hand over your money - and your friendship or family relationships will end even worse.
Financial Fraud & Off-Shore Banking
There has been consistent number of financial fraud in “off-shore banking” scams. And I am approached for help at least two or three times a year by individuals who have lost money in an international con-job.
Bermuda has two major sources of foreign revenue for its population; tourism and offshore insurance/finance. And while there are many legitimate offshore investments, there are just as many schemes and con artists eager to steal your money. Just watch the show American Greed on CNBC and you’ll quickly see what I mean!
Local politicians protect fraudulent operators in order to avoid any negative press in the U.S. and European markets that drive their industries. They fiercely protect their market - even if it means you get hosed.
The sad irony is that these schemes gush such fat geysers of ill-gotten cash that conmen protect themselves with expensive legal defenses - paid for by the victims.
They use the world’s legal system to hose the innocent by taking advantage of laws that sometimes seemed designed to protect crooks, particularly the draconian British libel laws that exist in many offshore financial centers.
Since the fraudster suddenly controls millions - or billions - there’s always an unscrupulous attorney willing to file a defamation lawsuit against any and all whistle-blowers. It leads to a situation where many frauds aren’t discovered until it’s too late.
6 Simple Steps to Avoid Financial Fraud
When you’re presented with an “opportunity”, there are a number of ways to give it a “sniff test” and tell if it’s legitimate.
1. Sounds Familiar
Does it look like anything you’ve ever heard of or seen before? It’s amazing how many versions of pyramid schemes or Nigerian scams there are out there. If it sounds similar, chances are it is.
2. Trusted Sources
Does this investment come from a trusted source? This is the hardest hurdle for most to get by. Bernie Madoff seemed to have an impeccable resume and background, and it’s why his fraud went on for so long. Do your own reference checks.
3. The Pudding
The proof is “in the pudding” as they say. If you ask for performance results or documentation to back up claims, they should easily provide the information. Information should be available on a quarterly basis.
4. Information Demands
If someone were to walk up to you and ask for your credit card number, you’d say no. But you’d be surprised to find out the number of people who give up sensitive information - like bank account numbers and personal data - for an opportunity to collect untold millions. When someone requires something like this without a reasonable expectation, warning flags should go up.
5. Your Uncle
Imagine you had a skeptical uncle (some of us don’t have to imagine it). If you presented the opportunity to him, what would be his response? If your uncle doesn’t approve, then neither should you.
6. Embarrassment
Would you have any qualms about sharing this investment with your friends and family? What about if it went badly? If you would feel that any investment of yours isn’t something that you’d be embarrassed to share, then that should tell you something.
Finally, it never hurts to be overly cautious. Take your time and do your research. It won’t stop all the scams and fraudsters out there, but it can protect you from the thousands of other snakes in the grass.
It all starts with education,
Doc Brown
P.S. One of the best ways to ‘vet’ an organization or business is by checking their standings with the Better Business Bureau. You can visit their website here.