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Common Financial Frauds/Schemes


Q: Telemarketing Fraud

When you send money to people you do not know personally or give personal or financial information to unknown callers, When you send money to people you do not know personally or give personal or financial information to unknown callers, you increase your chances of becoming a victim of telemarketing fraud. Warning signs — what a caller may tell you:
“You must act ‘now’ or the offer won’t be good.”
“You’ve won a ‘free’ gift, vacation, or prize.” But you have to pay for “postage and handling” or other charges.

“You must send money, give a credit card or bank account number, or have a check picked up by courier.”

You may hear this before you have had a chance to consider the offer carefully.

“You don’t need to check out the company with anyone.” The callers say you do not need to speak to anyone including your family, lawyer, accountant, local Better Business Bureau, or consumer protection agency.

“You don’t need any written information about their company or their references.”

“You can’t afford to miss this ‘high-profit, no-risk’ offer.”


If you hear these–or similar–”lines” from a telephone salesperson, just say “no thank you,” and hang up the phone.


Q: Some Tips to Avoid Telemarketing Fraud:

It’s very difficult to get your money back if you’ve been cheated over the phone. Before you buy anything by telephone, It’s very difficult to get your money back if you’ve been cheated over the phone. Before you buy anything by telephone, remember:

Don’t buy from an unfamiliar company. Legitimate businesses understand that you want more information about their company and are happy to comply.

Always ask for and wait until you receive written material about any offer or charity. If you get brochures about costly investments, ask someone whose financial advice you trust to review them. But, unfortunately, beware — not everything written down is true.

Always check out unfamiliar companies with your local consumer protection agency, Better Business Bureau, state Attorney General, the National Fraud Information Center, or other watchdog groups.

Unfortunately, not all bad businesses can be identified through these organizations. Obtain a salesperson’s name, business identity, telephone number, street address, mailing address, and business license number before you transact business.Some con artists give out false names, telephone numbers, addresses, and business license numbers. Verify the accuracy of these items.

Before you give money to a charity or make an investment, find out what percentage of the money is paid in commissions and what percentage actually goes to the charity or investment.

Before you send money, ask yourself a simple question. “What guarantee do I really have that this solicitor will use my money in the manner we agreed upon?”

You must not be asked to pay in advance for services. Pay services only after they are delivered.
Some con artists will send a messenger to your home to pick up money, claiming it is part of their service to you. In reality, they are taking your money without leaving any trace of who they are or where they can be reached.

Always take your time making a decision. Legitimate companies won’t pressure you to make a snap decision.
Don’t pay for a “free prize.” If a caller tells you the payment is for taxes, he or she is violating federal law.

Before you receive your next sales pitch, decide what your limits are — the kinds of financial information you will and won’t give out on the telephone.

It’s never rude to wait and think about an offer. Be sure to talk over big investments offered by telephone salespeople with a trusted friend, family member, or financial advisor.

Never respond to an offer you don’t understand thoroughly.

Never send money or give out personal information such as credit card numbers and expiration dates, bank account numbers, dates of birth, or social security numbers to unfamiliar companies or unknown persons.
Your personal information is often brokered to telemarketers through third parties.

If you have information about a fraud report it to state, local, or federal law enforcement agencies.


Q: Nigerian Letter or “419″ Fraud
Nigerian letter frauds combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter, mailed from Nigeria, offers the recipient the “opportunity” to share in a percentage of millions of dollars that the author, a self-proclaimed Nigerian letter frauds combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter, mailed from Nigeria, offers the recipient the “opportunity” to share in a percentage of millions of dollars that the author, a self-proclaimed government official, is trying to transfer illegally out of Nigeria.

The recipient is encouraged to send information to the author, such as blank letterhead stationery, bank name and account numbers and other identifying information using a facsimile number provided in the letter. Some of these letters have also been received via E-mail through the Internet. The scheme relies on convincing a willing victim, who has demonstrated a “propensity for larceny” by responding to the invitation, to send money to the author of the letter in Nigeria in several installments of increasing amounts for a variety of reasons.

Payment of taxes, bribes to government officials, and legal fees are often described in great detail with the promise that all expenses will be reimbursed as soon as the funds are spirited out of Nigeria. In actuality, the millions of dollars do not exist and the victim eventually ends up with nothing but loss. Once the victim stops sending money, the perpetrators have been known to use the personal information and checks that they received to impersonate the victim, draining bank accounts and credit card balances until the victim’s assets are taken in their entirety. While such an invitation impresses most law-abiding citizens as a laughable hoax, millions of dollars in losses are caused by these schemes annually. Some victims have been lured to Nigeria, where they have been imprisoned against their will, in addition to losing large sums of money. The Nigerian government is not sympathetic to victims of these schemes, since the victim actually conspires to remove funds from Nigeria in a manner that is contrary to Nigerian law. The schemes themselves violate section 419 of the Nigerian criminal code, hence the label “419 fraud.”


Q: Some Tips to Avoid Nigerian Letter or “419″ Fraud:
If you receive a letter from Nigeria asking you to send personal or banking information, do not reply in any manner. If you receive a letter from Nigeria asking you to send personal or banking information, do not reply in any manner. Send the letter to the U.S. Secret Service, your local FBI office, or the U.S. Postal Inspection Service.

You can also register a complaint with the Federal Trade Commission’s Consumer Sentinel.

If you know someone who is corresponding in one of these schemes, encourage that person to contact the FBI or the U.S. Secret Service as soon as possible.

Be skeptical of individuals representing themselves as Nigerian or foreign government officials asking for your help in placing large sums of money in overseas bank accounts. Do not believe the promise of large sums of money for your cooperation.

Guard your account information carefully.


Q: Impersonation/Identity Fraud
Impersonation fraud occurs when someone assumes your identity to perform a fraud or other criminal act. Criminals can get Impersonation fraud occurs when someone assumes your identity to perform a fraud or other criminal act. Criminals can get the information they need to assume your identity from a variety of sources, such as the theft of your wallet, your trash, or from credit or bank information. They may approach you in person, by telephone, or on the Internet and ask you for the information.

The sources of information about you are so numerous that you cannot prevent the theft of your identity. But you can minimize your risk of loss by following a few simple hints.


Q: Some Tips to Avoid Impersonation/Identity Fraud:
Never throw away ATM receipts, credit statements, credit cards, or bank statements in a usable form. Never give your Never throw away ATM receipts, credit statements, credit cards, or bank statements in a usable form. Never give your credit card number over the telephone unless you make the call.

Reconcile your bank account monthly and notify your bank of discrepancies immediately.

Keep a list of telephone numbers to call to report the loss or theft of your wallet, credit cards, etc.
Report unauthorized financial transactions to your bank, credit card company, and the police as soon as you detect them.

Review a copy of your credit report at least once each year. Notify the credit bureau in writing of any questionable entries and follow through until they are explained or removed.
If your identity has been assumed, ask the credit bureau to print a statement to that effect in your credit report.

If you know of anyone who receives mail from credit card companies or banks in the names of others, report it to local or federal law enforcement authorities.


Q: Advance Fee Scheme
An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value, such as a loan, contract, investment, or gift, and then receives little or nothing in return.

The variety of advance fee schemes is limited only by the imagination of the con artists who offer them. They may involve the sale of products or services, the offering of investments, lottery winnings, “found money,” or many other “opportunities.” Clever con artists will offer to find financing arrangements for their clients who pay a “finder’s fee” in advance. They require their clients to sign contracts in which they agree to pay the fee when they are introduced to the financing source. Victims often learn that they are ineligible for financing only after they have paid the “finder” according to the contract. Such agreements may be legal unless it can be shown that the “finder” never had the intention or the ability to provide financing for the victims.


Q: Some Tips to Avoid the Advanced Fee Schemes:
If the offer of an “opportunity” appears too good to be true, it probably is. Follow common business practice. For example, If the offer of an “opportunity” appears too good to be true, it probably is. Follow common business practice. For example, legitimate business is rarely conducted in cash on a street corner.

Know who you are dealing with. If you have not heard of a person or company that you intend to do business with, learn more about them. Depending on the amount of money that you intend to spend, you may want to visit the business location, check with the Better Business Bureau, or consult with your bank, an attorney, or the police.

Make sure you fully understand any business agreement that you enter into. If the terms are complex, have them reviewed by a competent attorney.

Be wary of businesses that operate out of post office boxes or mail drops and do not have a street address, or of dealing with persons who do not have a direct telephone line, who are never “in” when you call, but always return your call later.

Be wary of business deals that require you to sign nondisclosure or non-circumvention agreements that are designed to prevent you from independently verifying the bona fides of the people with whom you intend to do business. Con artists often use non-circumvention agreements to threaten their victims with civil suit if they report their losses to law enforcement.


Q: Redemption/Strawman/Bond Fraud
Proponents of this scheme will claim that the U.S. Government or the Treasury Department controls bank accounts— Proponents of this scheme will claim that the U.S. Government or the Treasury Department controls bank accounts often referred to as “U.S. Treasury Direct Accounts”—for all U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and websites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes.
Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times.

This scheme predominately uses fraudulent financial documents that appear to be legitimate.

These documents are frequently referred to as “Bills of Exchange,” “Promissory Bonds,” “Indemnity Bonds,” “Offset Bonds,” “Sight Drafts,” or “Comptrollers Warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful. Notaries may be used in an attempt to make the fraud appear legitimate. Often, victims of the scheme are instructed to address their paperwork to the U.S. Secretary of the Treasury.


Q: Some Tips to Avoid Redemption/Strawman/Bond Fraud
Be wary of individuals or groups selling kits that they claim will inform you on to access secret bank accounts. Be wary of individuals or groups proclaiming that paying federal and/or state income tax is not necessary.

Do not believe that the U.S. Treasury controls bank accounts for all citizens.

Be skeptical of individuals advocating that speeding tickets, summons, bills, tax notifications, or similar documents can be resolved by writing “acceptance for value” on them.

If you know of anyone advocating the use of property liens to coerce acceptance of this scheme, contact your local FBI office.


Q: What is a “Ponzi” Scheme?
A Ponzi scheme is essentially an investment fraud wherein the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victims’ funds, the operator pays “dividends” to initial investors using the principle amounts “invested” by subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds, or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”

This type of scheme is named after Charles Ponzi of Boston, Massachusetts, who operated an extremely attractive investment scheme in which he guaranteed investors a 60 percent return on their investment in postal coupons.

Although he was able to pay his initial investors, the scheme dissolved when he was unable to pay investors who entered the scheme later.


Q: Some Tips to Avoid Ponzi Schemes:
As with all investments, exercise due diligence in selecting investments and the people with whom you invest. Make sure you fully understand the investment before you invest your money.


Q: Counterfeit Money Orders
The latest scam to hit American consumers involves counterfeit financial instruments. It’s costing victims millions of dollars each month. Counterfeit checks and money orders — including postal money orders — are used in the scam, which often starts with what appears to be an innocent contact via an Internet chat room or by email.

Con artists posing as students, tourists, and overseas military personnel ask for help in cashing checks and money orders, or target people looking for love or companionship, in order to exploit their vulnerability.

Online auctioneers are also at risk. Scammers buy goods or services on the Web and offer payment by check or money order — often in excess of the actual value of the goods or services.

In most cases, con artists ship the check or money order and ask the victim to cash it, keep a portion as a “gift,” and wire back the rest, usually to an overseas address.

Bank clients are responsible for the checks they deposit, and victims must repay the bank for bad checks. Federal law requires banks to make the funds you deposit available quickly, but it’s important for consumers to know that, just because you can withdraw the money, it doesn’t mean the check is good. Banks often release funds from a cashier’s check or money order before it clears.


Q: Why are there so many victims?
Con artists have found a means of exploiting the charitable nature of Americans. This confidence scam plays to our core values as a society, which often blinds our judgment in dealing with the real issue. Additionally, the Internet brings this scam into our home, where we feel most secure and are more vulnerable.

There are also “non-victims.” Anyone who agrees to cash the instruments on behalf of a foreign citizen and keep a portion for themselves are not victims, they are accomplices.


Q: Why Postal Money Orders?
Americans trust the U.S. Postal Service and the security provided by the U.S. Postal Inspection Service. Consumers often believe, incorrectly, that postal money orders and cashier’s checks are “good” if they’re cashed by a bank and are not subject to recourse. This is not true.


Q: Postal Money Order Security Features
Similar to U.S. currency, postal money orders are designed with colored inks, watermarks, and security threads.

Become familiar with the security features of genuine postal money orders: Watermarks of Benjamin Franklin, visible when held to the light, run through the white oval on the left front side of the money order. Watermarks are also visible from the reverse side.

A dark security thread runs from top to bottom to the right of the Franklin watermarks. When held to the light, the thread reveals the micro printed letters “USPS” alternating right-side up and upside down throughout the thread. The letters are not visible if not held to the light.

Additional features you should be aware of:

Warning instructions are printed on the reverse of postal money orders.
Denominations are displayed in two locations, on the front, with no discoloration around the dollar amounts (discoloration may indicate alteration).

Maximum value of $1,000 on domestic/$700 on international postal money orders.


Q: Where the Counterfeits Originate
Most counterfeits originate overseas. They’re produced by an off-set printing process, which creates a document with an authentic appearance. However, fraudsters can’t replicate the security features of genuine postal money orders. For additional information and resources on fraudulent money orders, call the Money Order Fraud Hot Line, run by the Inspection Service’s Criminal Investigative Support Center, at (800) 372-8347.