INVESTMENT SWINDLES AND CON SCHEMES
TABLE OF CONTENTS
I. INTRODUCTION ...... 1
II. INVESTMENT SWINDLES AND CON SCHEMES OVERVIEW Who Are the Perpetrators and Victims of These Schemes? ...... 3 Why Do the Perpetrators Commit These Con Schemes? ...... 3 Why Do Consumers Become Victims to These Schemes? ...... 4 What Are the Red Flags That Characterize These Con Schemes? ...... 4 How Are These Con Schemes Executed? ...... 5 Effects on Consumers ...... 6 Review Questions ...... 7
III. INVESTMENT SCHEMES Introduction ...... 8 Bonds ...... 10 Junk Bonds ...... 10 Zero-Coupon Bonds ...... 11 Certificates of Deposit ...... 12 Callable CDs ...... 13 Equity Indexed Certificates of Deposit ...... 16 Collectibles ...... 16 Art ...... 16 Precious Stones and Metals ...... 16 Rare Coins ...... 17 Commodities ...... 18 Exotic Commodities ...... 18 Oil and Gas Investment Fraud ...... 18 Futures ...... 18 Commodities Futures Contracts ...... 19 Commodity Trading Systems ...... 22 Commodity Pools ...... 23 “IRA-Approved” Investments ...... 23 Variable Annuities ...... 24 Offshore and Overseas Investments ...... 24 Foreign Exchange (FOREX) Investment Fraud ...... 24 Prime Bank Guarantees ...... 25 Options ...... 25 Exchange-Traded Options ...... 26 Relationship of the Underlying Instrument to the Option ...... 26 Option Values and Premiums ...... 27 Over-the-Counter (OTC) Options...... 27 Scalping Schemes ...... 27 Hedge Funds ...... 28 Promissory Notes ...... 29 Real Estate Investment Scams ...... 30 Real Estate Limited Partnerships ...... 30
Investment Swindles and Con Schemes i INVESTMENT SWINDLES AND CON SCHEMES
III. INVESTMENT SCHEMES (CONT.) Timeshares ...... 31 Real Estate Options ...... 31 Securities ...... 31 Repurchase Agreements ...... 31 Treasury Securities ...... 32 Unregistered and Falsely Represented Securities ...... 34 Stock Scams ...... 34 Blind Pools ...... 35 Micro-Cap Companies ...... 35 Online Day Trading ...... 36 Penny Stock ...... 37 Worthless Stock ...... 37 Viatical Settlements ...... 38 Clean Sheeting ...... 39 Online Investments ...... 40 Review Questions ...... 42
IV. INVESTMENT MARKETING SCHEMES AND TECHNIQUES Types of Marketing Schemes ...... 44 Ponzi Schemes...... 44 Illegal Pyramid or Ponzi Scheme? ...... 45 Classification of Schemes ...... 50 Marketing Techniques ...... 61 Bait and Switch ...... 61 Churning ...... 61 Bucket Shops ...... 63 Cold Calling ...... 63 Excessive Pricing ...... 64 Front Running—Dual Trading ...... 64 Parking ...... 65 Pump and Dump ...... 65 Unauthorized Trading ...... 67 Block Order Schemes ...... 68 Preventing Investment Fraud Schemes ...... 68 Review Questions ...... 70
V. ENTREPRENEURIAL SCHEMES Introduction ...... 71 Franchise Business Opportunities ...... 71 Display Racks ...... 72 Pay Phones ...... 73 Vending Machines ...... 73 Pay-Per-Call Numbers ...... 73 Invention Promotion Firms ...... 74 Vanity Publishing Companies ...... 75 Wealth-Building Programs...... 75 Work-at-Home Opportunities ...... 75
ii Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES
V. ENTREPRENEURIAL SCHEMES (CONT.) Assembly and Crafts Schemes ...... 76 Chain Letters ...... 77 Coupons ...... 77 Envelope Stuffing ...... 78 Medical Billings ...... 79 Internet-Based and Online Scams ...... 79 Overstocked and Discontinued Items ...... 80 Report Writing ...... 80 Two-Cent Postage Stamps ...... 80 Questions to Ask Regarding Work-At-Home Opportunities ...... 81 Review Questions ...... 82
VI. CREDIT/DEBIT AND MONEY MANAGEMENT SCHEMES Introduction ...... 83 Advance Fee Scams ...... 83 Fraudulent Loans ...... 83 Nigerian 419 Fraud Schemes ...... 84 Automatic Debit and Direct Debit Programs ...... 89 Bank Account Scams ...... 89 Credit Card Fraud ...... 89 Credit Card Offers ...... 90 Credit Card Loss Protection Plans ...... 91 Consumer Debt ...... 92 Debt Consolidation ...... 92 Credit Repair ...... 92 Mortgage Fraud ...... 97 Loan Origination Schemes ...... 98 Foreclosure Rescue Schemes ...... 98 Builder Bailout Schemes ...... 98 Equity Skimming Schemes ...... 98 Home Equity Line of Credit Schemes ...... 99 Illegal Property Flipping Schemes ...... 99 Reverse Mortgage Fraud ...... 99 Credit Enhancement Schemes ...... 99 Loan Modification Schemes ...... 99 Fraud by Lenders ...... 100 Credit Insurance Packing ...... 100 Property Deeding ...... 100 Fraudulent Loans ...... 100 Balloon Payments ...... 100 Vehicle Title Loans ...... 101 Money Managers and Advisors ...... 101 Review Questions ...... 102
VII. HIGH-TECH VICTIMIZATION SCHEMES Introduction ...... 103 Computers ...... 103
Investment Swindles and Con Schemes iii INVESTMENT SWINDLES AND CON SCHEMES
VII. HIGH-TECH VICTIMIZATION SCHEMES (CONT.) Desktop Counterfeiting ...... 103 Social Engineering ...... 104 Electronic Payment Fraud ...... 104 Wire Fraud ...... 104 FCC Licenses, Lotteries, and Auctions ...... 105 Interactive Video and Data Service (IVDS) ...... 106 Paging License ...... 107 Specialized Mobile Radio ...... 107 Wireless Cable Television ...... 108 Identity Theft ...... 108 2010 Identity Fraud Survey Report ...... 109 Common Ways Criminals Obtain Information ...... 109 Brokerage Firm Identity Theft Scams ...... 114 U.S. Legislation...... 114 Preventing Identity Theft ...... 115 Internet and Online Fraud ...... 116 Modem Hijacking ...... 116 Phishing ...... 117 Pharming ...... 121 Mousetrapping ...... 121 Get Rich Quick ...... 122 Tax Scams ...... 122 Counterfeit Check Scams ...... 122 E-Commerce ...... 124 Telecommunications Fraud ...... 127 Factoring Companies ...... 127 Calling Cards and Pay Phone Fraud...... 128 Cellular Fraud ...... 130 PBX Fraud ...... 131 Voice Mail Fraud...... 135 Telemarketing Enforcement ...... 135 Review Questions ...... 142
VIII. PROMOTIONS AND CHANCE SCHEMES Introduction ...... 144 Auction Fraud ...... 144 Government Auctions ...... 145 Internet Auctions ...... 147 Tips for Online Auction Bidders ...... 150 Lotteries and Gambling ...... 151 Foreign Lotteries ...... 151 Green Card Lotteries ...... 152 Gambling ...... 152 Sweepstakes and Prizes ...... 153 Advance Fee Sweeps ...... 153 Free Prizes ...... 154 One-of-Five Prizes ...... 154
iv Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES
VIII. PROMOTIONS AND CHANCE SCHEMES (CONT.) Puzzle Sweepstakes ...... 154 Telephone Numbers ...... 155 Pay-Per-Call/900 Numbers ...... 155 800 Numbers and International Calls ...... 155 Travel and Vacation Fraud ...... 156 Travel Certificates ...... 156 Packages and Clubs ...... 156 Review Questions ...... 158
IX. OFFERS AND SALES SCHEMES Introduction ...... 159 Automotive Schemes ...... 159 Car Advertisements ...... 159 Buying New and Used Cars ...... 159 Leasing Cars ...... 160 Financing ...... 160 Gas-Saving Products ...... 160 Odometer Fraud ...... 160 Automotive Repairs ...... 161 Charities, Fundraising, and Non-profits ...... 161 Gifting Clubs ...... 162 Free-Information Services ...... 162 Rebates ...... 163 Donation-Processing Job Scams ...... 163 Preventing Charity Fraud ...... 164 Home Improvement Schemes ...... 164 Contractors ...... 164 Home-Improvement-Loan Scam ...... 165 Service Contracts ...... 166 Preventing Home Improvement Fraud ...... 166 Life Events (Births, Deaths, and Marriage) ...... 166 Caskets and Burial Vaults ...... 166 Social Security Number ...... 167 Merchandising ...... 167 Magazines ...... 167 Unordered Merchandise ...... 168 Seasonal Frauds ...... 169 Holidays ...... 169 Avoiding Fraud in Online Holiday Shopping ...... 170 School Breaks ...... 171 Weather-Related Scams ...... 171 Tax Schemes ...... 172 Return Preparer Fraud ...... 173 Hiding Income Offshore...... 173 Phishing ...... 173 Abuse of Charitable Organizations and Deductions ...... 174 Review Questions ...... 176
Investment Swindles and Con Schemes v INVESTMENT SWINDLES AND CON SCHEMES
X. PERSONAL DEVELOPMENT SCHEMES College Scholarships ...... 177 Diploma Mills ...... 178 Career or Vocational School ...... 179 Employment Services ...... 180 Federal Government Employment ...... 180 International and Overseas Employment Firms ...... 180 Health-Related Schemes ...... 180 Dietary and Health Cures ...... 181 Cosmetic Surgery Scams ...... 181 Health Studio and Club Scams ...... 182 Smoking Cures ...... 182 Anti-Snoring Products ...... 182 Weight Loss Programs ...... 183 Talent ...... 183 Dance Studio Scams ...... 183 Modeling and Acting Scams ...... 183 Romance Fraud ...... 184 Social Networking ...... 184 Review Questions ...... 186
XI. OTHER CON SCHEMES AND METHODS Introduction ...... 187 Con Game Terminology ...... 187 Con Schemes ...... 188 Badger Game ...... 188 Bail Bond Swindle ...... 188 Bank Examiner Swindle ...... 188 Block Hustle ...... 188 Call-Sell Operator Scam ...... 188 Canister Scam ...... 188 Cash-on-Delivery Scam ...... 188 Goat Pasture Scam ...... 189 Gold Mine Swindle ...... 189 Green Goods Scheme ...... 189 Home Diversion Scheme ...... 189 Inheritance Swindle ...... 189 Jamaican Handkerchief or Envelope Switch ...... 189 Knockoffs ...... 189 Missing-Heir Scheme ...... 189 Missing Person Scam ...... 190 Murphy Game ...... 190 Pigeon Drop ...... 190 Poker Bunco ...... 190 Scavenger or Revenge Scam ...... 190 Shoulder Surfer Scam ...... 190 Slip and Fall Scams ...... 190 Spanish Prisoner Game ...... 190
vi Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES
XI. OTHER CON SCHEMES AND METHODS (CONT.) Sweetheart or Friendship Scheme ...... 191 Swoop-and-Squat Scheme ...... 191 The Obituary Hustle ...... 191 Three-Card Monte ...... 191 Trash-and-Dash Scheme ...... 191 Yank Down Scheme ...... 191 Review Questions ...... 192
XII. CON SCHEME DELIVERY METHODS AND FOCUS GROUPS Delivery Methods ...... 195 Internet ...... 195 In Person or Face-to-Face Scams ...... 197 Telephone ...... 198 Television ...... 202 Focus Groups ...... 203 Affinity Groups ...... 203 Businesses and Organizations ...... 203 Children ...... 207 Elderly Persons ...... 208 Review Questions ...... 210
XIII. CURRENT TRENDS AND STATISTICS Introduction ...... 212 Current Trends and Statistics ...... 212 Consumer Sentinel ...... 212 Top Complaint Categories for 2009 ...... 213 The Internet Crime Complaint Center (IC3) ...... 215 Top Ten Internet Fraud Schemes for 2009 ...... 217 Review Questions ...... 219
XIV. CONSUMER PROTECTION RESOURCES National Consumer Protection Week ...... 220 Agencies and Organizations ...... 221 Direct Marketing Association ...... 226 Consumer Credit Bureaus ...... 228 State Offices in the United States That Regulate Business Opportunities ...... 229 Canada ...... 234
XV. CONCLUSION
XVI. SOLUTIONS TO REVIEW QUESTIONS II. Investment Swindles and Con Schemes Overview ...... 238 III. Investment Schemes ...... 240 IV. Investment Marketing Schemes and Techniques ...... 245 V. Entrepreneurial Schemes ...... 248 VI. Credit/Debit and Money Management Schemes ...... 251 VII. High-Tech Victimization/Schemes ...... 254
Investment Swindles and Con Schemes vii INVESTMENT SWINDLES AND CON SCHEMES
XVI. SOLUTIONS TO REVIEW QUESTIONS (CONT.) VIII. Promotions and Chance Schemes ...... 257 IX. Offers and Sales Schemes ...... 260 X. Personal Development Schemes ...... 263 XI. Other Con Schemes ...... 265 XII. Con Scheme Delivery Methods and Focus Groups ...... 270 XIII. Current Trends and Statistics ...... 273
FINAL EXAMINATION ...... E-1
viii Investment Swindles and Con Schemes