INVESTMENT SWINDLES AND CON SCHEMES

GLOBAL HEADQUARTERS • the gregor building 716 West Ave • Austin, TX 78701-2727 • USA INVESTMENT SWINDLES AND CON SCHEMES

TABLE OF CONTENTS

I. INTRODUCTION

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 Video ...... 4 Why Do Consumers Become Victims to These Schemes? ...... 4 What Are the Red Flags That Characterize These Con Schemes? ...... 5 How Are These Con Schemes Executed? ...... 5 Effects on Consumers ...... 6 Review Questions ...... 7

III. INVESTMENT SCHEMES Introduction ...... 9 Bonds ...... 10 Junk Bonds ...... 10 Zero-Coupon Bonds ...... 11 Certificates of Deposit ...... 12 Callable CDs...... 14 Equity Indexed Certificates of Deposit ...... 16 Collectibles ...... 16 Art ...... 16 Precious Stones and Metals ...... 17 Rare Coins ...... 17 Commodities ...... 18 Exotic Commodities ...... 18 Oil and Gas Investment ...... 18 Video ...... 19 Crowdfunding...... 19 Digital Currencies ...... 19 Futures ...... 20 Commodities Futures Contracts ...... 21 Commodity Trading Systems ...... 24 Commodity Pools...... 24 “IRA-Approved” Investments ...... 25 Variable Annuities ...... 25 Offshore and Overseas Investments ...... 26 Foreign Exchange (FOREX) Investment Fraud ...... 26 Prime Bank Guarantees ...... 26 Options ...... 27 Exchange-Traded Options ...... 27 Relationship of the Underlying Instrument to the Option ...... 28 Option Values and Premiums ...... 28 Over-the-Counter (OTC) Options ...... 29 Scalping Schemes ...... 29

Investment Swindles and Con Schemes i INVESTMENT SWINDLES AND CON SCHEMES

III. INVESTMENT SCHEMES (CONT.) Hedge Funds ...... 29 Promissory Notes ...... 30 Real Estate Investment Scams ...... 31 Real Estate Limited Partnerships ...... 31 Timeshares ...... 32 Real Estate Options ...... 33 Securities ...... 33 Repurchase Agreements ...... 33 Treasury Securities ...... 33 Unregistered and Falsely Represented Securities ...... 36 Stock Scams ...... 36 Blind Pools ...... 36 Late-Day Trading ...... 36 Micro-Cap Companies ...... 36 Online Day Trading ...... 38 Penny Stock ...... 38 Worthless Stock ...... 39 Viatical Settlements ...... 39 Clean Sheeting ...... 40 Online Investments ...... 42 Review Questions ...... 44

IV. INVESTMENT MARKETING SCHEMES AND TECHNIQUES Types of Marketing Schemes ...... 47 Ponzi Schemes ...... 47 Video ...... 48 Illegal Pyramid or ? ...... 48 Classification of Schemes ...... 53 Marketing Techniques ...... 64 Bait and Switch ...... 65 Churning ...... 65 Bucket Shops ...... 66 Cold Calling ...... 67 Excessive Pricing ...... 67 Front Running—Dual Trading ...... 67 Parking ...... 68 ...... 69 Unauthorized Trading ...... 70 Block Order Schemes ...... 71 Preventing Investment Fraud Schemes ...... 72 Review Questions ...... 74

V. ENTREPRENEURIAL SCHEMES Introduction ...... 75 Franchise Business Opportunities ...... 75 Display Racks ...... 76 Pay Phones ...... 77

ii Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES

V. ENTREPRENEURIAL SCHEMES (CONT.) Vending Machines ...... 77 Pay-Per-Call Numbers ...... 77 Invention Promotion Firms ...... 78 Vanity Publishing Companies ...... 79 Wealth-Building Programs...... 79 Work-at-Home Opportunities ...... 79 Assembly and Crafts Schemes ...... 80 Chain Letters ...... 81 Coupons ...... 81 Envelope Stuffing...... 82 Medical Billings ...... 83 Internet-Based and Online Scams ...... 84 Overstocked and Discontinued Items ...... 84 Report Writing ...... 84 Two-Cent Postage Stamps ...... 85 Questions to Ask Regarding Work-at-Home Opportunities ...... 85 Review Questions ...... 87

VI. CREDIT/DEBIT AND MONEY MANAGEMENT SCHEMES Introduction ...... 89 Advance-Fee Scams ...... 89 Fraudulent Loans...... 89 Video ...... 90 Nigerian 419 Fraud Schemes ...... 90 Automatic Debit and Direct Debit Programs ...... 95 Bank Account Scams ...... 95 Credit Card Fraud ...... 96 Credit Card Offers ...... 96 Credit Card Loss Protection Plans ...... 98 Consumer Debt ...... 98 Debt Consolidation ...... 98 Credit Repair ...... 99 Mortgage Fraud ...... 104 Loan Origination Schemes ...... 104 Foreclosure Rescue Schemes ...... 104 Builder Bailout Schemes ...... 105 Equity Skimming Schemes ...... 105 Home Equity Line of Credit Schemes ...... 105 Illegal Property Flipping Schemes ...... 105 Reverse Mortgage Fraud ...... 105 Credit Enhancement Schemes ...... 105 Loan Modification Schemes ...... 106 Fraud by Lenders ...... 106 Credit Insurance Packing ...... 106 Property Deeding ...... 106 Fraudulent Loans ...... 107 Balloon Payments ...... 107

Investment Swindles and Con Schemes iii INVESTMENT SWINDLES AND CON SCHEMES

VI. CREDIT/DEBIT AND MONEY MANAGEMENT SCHEMES (CONT.) Vehicle Title Loans ...... 107 Money Managers and Advisors ...... 107 Review Questions ...... 109

VII. HIGH-TECH VICTIMIZATION SCHEMES Introduction ...... 111 Computers ...... 111 Desktop Counterfeiting ...... 111 Social Engineering ...... 112 Electronic Payment Fraud ...... 112 Wire Fraud ...... 112 FCC Licenses, Lotteries, and Auctions ...... 113 Interactive Video and Data Service (IVDS) ...... 114 Paging License ...... 115 Specialized Mobile Radio ...... 115 Wireless Cable Television ...... 116 Identity Theft ...... 116 2015 Identity Fraud Survey Report ...... 117 Business Identity Theft ...... 117 Common Ways Criminals Obtain Information ...... 118 Video ...... 119 Video ...... 119 Brokerage Firm Identity Theft Scams ...... 122 U.S. Legislation ...... 122 Preventing Identity Theft ...... 123 Video ...... 124 Internet and Online Fraud ...... 124 Modem Hijacking ...... 124 ...... 125 Video ...... 126 Video ...... 126 Video ...... 128 Pharming ...... 129 Video ...... 130 Mousetrapping ...... 130 Get Rich Quick ...... 130 Tax Scams ...... 130 Counterfeit Check Scams ...... 131 E-Commerce ...... 133 Video ...... 135 Telecommunications Fraud ...... 135 Factoring Companies ...... 136 Calling Cards and Pay Phone Fraud ...... 137 Mobile Phone Fraud ...... 138 PBX Fraud...... 139 Voice Mail Fraud ...... 143 Telemarketing Enforcement ...... 144

iv Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES

VII. HIGH-TECH VICTIMIZATION SCHEMES (CONT.) Review Questions ...... 150

VIII. PROMOTIONS AND CHANCE SCHEMES Introduction ...... 151 Auction Fraud ...... 151 Government Auctions ...... 152 Internet Auctions ...... 154 Tips for Online Auction Bidders ...... 157 Lotteries and Gambling ...... 158 Foreign Lotteries ...... 158 Green Card Lotteries ...... 159 Gambling ...... 159 Video ...... 160 Sweepstakes and Prizes ...... 160 Advance Fee Sweeps ...... 160 Video ...... 161 Free Prizes ...... 161 One-of-Five Prizes ...... 161 Puzzle Sweepstakes ...... 162 Telephone Numbers ...... 162 Pay-Per-Call and 900 Numbers ...... 162 800 Numbers and International Calls ...... 163 Travel and Vacation Fraud ...... 163 Travel Certificates ...... 163 Packages and Clubs ...... 163 Review Questions ...... 165

IX. OFFERS AND SALES SCHEMES Introduction ...... 167 Automotive Schemes ...... 167 Car Advertisements ...... 167 Buying New and Used Cars ...... 167 Leasing Cars ...... 168 Financing ...... 168 Gas-Saving Products ...... 168 Odometer Fraud ...... 168 Automotive Repairs ...... 169 Charities, Fundraising, and Non-profits ...... 169 Gifting Clubs ...... 170 Free-Information Services ...... 170 Rebates ...... 171 Donation-Processing Job Scams ...... 171 Preventing ...... 172 Disaster Fraud ...... 172 Home Improvement Schemes ...... 173 Contractors ...... 173 Home-Improvement-Loan Scam ...... 174

Investment Swindles and Con Schemes v INVESTMENT SWINDLES AND CON SCHEMES

IX. OFFERS AND SALES SCHEMES (CONT.) Service Contracts ...... 174 Preventing Home Improvement Fraud ...... 174 Life Events (Births, Deaths, and Marriage) ...... 175 Caskets and Burial Vaults ...... 175 Social Security Number ...... 175 Merchandising ...... 175 Magazines ...... 176 Unordered Merchandise ...... 176 Seasonal ...... 177 Holidays ...... 177 Avoiding Fraud in Online Holiday Shopping ...... 178 School Breaks ...... 179 Weather-Related Scams ...... 180 Tax Schemes ...... 180 Identity Theft ...... 181 Phishing ...... 181 Return Preparer Fraud ...... 181 Hiding Income Offshore ...... 182 “Free Money” from the IRS & Tax Scams Involving Social Security ...... 182 False/Inflated Income and Expenses ...... 182 False Form 1099 Refund Claims ...... 182 Frivolous Arguments ...... 182 Falsely Claiming Zero Wages ...... 182 Abuse of Charitable Organizations and Deductions ...... 183 Disguised Corporate Ownership ...... 183 Misuse of Trusts ...... 183 Review Questions ...... 184

X. PERSONAL DEVELOPMENT SCHEMES College Scholarships ...... 185 Diploma Mills ...... 186 Career or Vocational School ...... 187 Employment Services ...... 187 Federal Government Employment ...... 187 International and Overseas Employment Firms ...... 188 Health-Related Schemes ...... 188 Dietary and Health Cures ...... 188 Cosmetic Surgery Scams ...... 189 Health Studio and Club Scams ...... 189 Smoking Cures ...... 190 Anti-Snoring Products ...... 190 Weight Loss Programs...... 191 Talent ...... 191 Dance Studio Scams ...... 191 Modeling and Acting Scams ...... 191 Romance Fraud ...... 192 Social Networking ...... 192

vi Investment Swindles and Con Schemes INVESTMENT SWINDLES AND CON SCHEMES

X. PERSONAL DEVELOPMENT SCHEMES (CONT.) Video ...... 193 Review Questions ...... 194

XI. OTHER CON SCHEMES AND METHODS Introduction ...... 195 Con Game Terminology ...... 195 Con Schemes ...... 196 ...... 196 Bail Bond Swindle ...... 196 Bank Examiner Swindle ...... 196 Block Hustle ...... 196 Call-Sell Operator Scam ...... 196 Canister Scam ...... 196 Cash-on-Delivery Scam ...... 196 Goat Pasture Scam ...... 197 Gold Mine Swindle ...... 197 Green Goods Scheme ...... 197 Home Diversion Scheme ...... 197 Inheritance Swindle ...... 197 Jamaican Handkerchief or Envelope Switch ...... 197 Knockoffs ...... 197 Missing-Heir Scheme ...... 197 Missing Person Scam ...... 198 Murphy Game ...... 198 ...... 198 Poker Bunco...... 198 Scavenger or Revenge Scam ...... 198 Shoulder Surfer Scam ...... 198 Slip and Fall Scams ...... 198 Game ...... 198 Sweetheart or Friendship Scheme...... 199 Video ...... 199 Swoop-and-Squat Scheme ...... 199 The Obituary Hustle ...... 199 Three-Card Monte ...... 199 Trash-and-Dash Scheme ...... 199 Yank Down Scheme ...... 199 Review Questions ...... 200

XII. CON SCHEME DELIVERY METHODS AND FOCUS GROUPS Delivery Methods ...... 203 Internet ...... 203 In-Person or Face-to-Face Scams ...... 205 Telephone ...... 206 Television ...... 210 Focus Groups ...... 211 Affinity Groups ...... 211

Investment Swindles and Con Schemes vii INVESTMENT SWINDLES AND CON SCHEMES

XII. CON SCHEME DELIVERY METHODS AND FOCUS GROUPS (CONT.) Businesses and Organizations ...... 212 Video ...... 213 Video ...... 214 Children ...... 216 Elderly Persons ...... 217 Review Questions ...... 219

XIII. CURRENT TRENDS AND STATISTICS Introduction ...... 221 Current Trends and Statistics ...... 221 Consumer Sentinel ...... 221 Top Complaint Categories for 2014 ...... 223 The Internet Crime Complaint Center (IC3) ...... 224 Top Five Internet Scam Categories for 2011...... 226 Top Five Reported Crime Categories for 2011 ...... 226 Review Questions ...... 228

XIV. CONSUMER PROTECTION RESOURCES National Consumer Protection Week ...... 229 Agencies and Organizations ...... 230 Direct Marketing Association ...... 235 Consumer Credit Bureaus ...... 236 State Offices in the United States That Regulate Business Opportunities ...... 237 Canada ...... 243

XV. CONCLUSION ...... 245

XVI. APPENDIX: VIDEO TRANSCRIPT ...... 247

XVII. SOLUTIONS TO REVIEW QUESTIONS II. Investment Swindles and Con Schemes Overview ...... 259 III. Investment Schemes ...... 261 IV. Investment Marketing Schemes and Techniques ...... 266 V. Entrepreneurial Schemes ...... 269 VI. Credit/Debit and Money Management Schemes ...... 272 VII. High-Tech Victimization Schemes ...... 275 VIII. Promotions and Chance Schemes ...... 278 IX. Offers and Sales Schemes ...... 281 X. Personal Development Schemes ...... 284 XI. Other Con Schemes ...... 286 XII. Con Scheme Delivery Methods and Focus Groups ...... 292 XIII. Current Trends and Statistics ...... 295

XVIII. FINAL EXAMINATION ...... E-1

XIX. INDEX ...... I-1

viii Investment Swindles and Con Schemes