Welcome to the Club — Part 2 | Real Life

Remember last time we commiserated about being qualifying members of the “Ripped-Off/Scammed/Defrauded Club” And we discovered the National Center For Victims of Crime’s comprehensive single-source free guidebook, “Taking Action - An Advocate’s Guide to Assisting Victims of Financial Fraud", that I welcome as a treasure, a key manual for our daily prevention, detection, and response action plans.

We'll do well to explore its wisdom. It's a complete "Consumer financial Fraud '101'" textbook, plus expansive directories of, and contact information for, those pro-active advocate government and N.G.O. agencies that until now we've known so little about and therefore we've underutilized.

Its introduction expands our mind-set concept of the problem: "Financial fraud is real and can be devastating…..Prevention is an important part of combating it, but fraud occurs in spite of preventive measures……Victims are left to cope with the aftermath of compromised identities, damaged credit, and financial loss, and a painful range of emotions including fear, anger, and frustration.”

An even bigger problem: We fail to report the vast majority of hits, and the scammers therefore continue, unrestrained. If we understood and counteracted our inhibitions -- some of the agencies teach us how to — then this phenomenon would improve dramatically. "Taking Action" explains:

▪ We don't know where to turn, who to report to.

▪ Doubt that action will help.

▪ Fear of loss of legal or financial control.

▪ Fear of threats and intimidation from the perpetrators.

▪ Loss of esteem and prestige among our peers.

▪ Worry that a family member (often a breadwinner) or friend will be prosecuted, or lose their job and/or credit.

▪ Lack of confidence in the authorities.

How fraud happens: Fraudsters' deals appear to be good and true. To fool us about "too good to be true", they cleverly elicit personal information about us, probe for our psychological soft spots, and suck us into emotional, impulsive decisions. They know what the behavioral scientists tell us: Emotions govern our thinking vastly more than reasoned judgment does. Rationality is scammers' enemy; they dance us away from reasoned judgment.

"Taking Action" reveals a lot more, and mentions other resources, about the fascinating topic of motivation and the problem's enormity.

Anatomy of financial fraud: Although the instances are countless, most fall into four major categories. "Taking Action" describes them, illustrates with some of their common schemes, and tells us about the help agencies who combat each type:

1. Identity theft

:

"…..the illegal access to and use of an individual's, (also business's, or agency's) personal and/or financial information ...resulting in financial loss and damaged credit history, requiring substantial effort to repair…and often making a victim more vulnerable to other types of fraud…We're all at risk.…anyone whose personal information is exposed". In our increasingly electronic world, exposure is nearly inevitable via scammers' brilliant cyber-sleuthing, despite all protective strategies.

Credit/debit card skimming happens when card information is skimmed off during a legitimate transaction. Thieves who search through trash are dumpster diving. Hackers electronically penetrate personal computer system firewalls, and invade financial institutions', government, n.g.o. and vendors' databases, to steal both business and personal information. Stolen or lost wallets and purses offer driver's licenses, personal checks, debit/credit cards, Social Security numbers, family and friends' names and contact information, business relationships, insurance, and everything else, plus green folding money. Phishing is the technique of using spam e-mail or the phone to pose as a legitimate organization to lure victims into revealing our confidential data.

2. Investment fraud:

"A wide range of practices to induce investors to make investment decisions….can include untrue or misleading information or fictitious opportunities….may involve stocks, bonds, notes, commodities, currency or even real estate…can take many forms.

FINRA Investor Education Foundation refutes the stereotypes, showing instead that typical victims are predominately male, financially knowledgeable, college educated, and self reliant about decision-making, have above-average income, and are willing to take high risks (even the 55+ group). Those risks include failure to check out vendors' credentials and the investments' detailed facts, failure to question new and strange ventures often offered via phone or e-mail and at free-meal seminars, and — catch this! — relying on tips from acquaintances. Oh, how us successful guys' egos let us think we're so smart!

Investment fraud's common schemes include:

▪ Advance-fee schemes: Fraudster offers a ridiculously high price for a nearly worthless security in investor's portfolio, but only after receiving a "processing fee.” You know what happens next — nothing. The technique also shows up in beneficiary, lottery, and the "Nigerian" schemes.

▪ Market manipulation or "pump and dump" scam: A fraudster deliberately buys huge quantities of the low-priced stock of a small, infrequently-traded limping-along company, and then spreads positive, usually false, information to build ("pump") interest in the stock. Of course, unknowing investors believe they're being smart in identifying a big profit opportunity, and they create buying demand by rushing to get in before the price soars. Then, of course, the price does soar, but only long enough for the fraudster to sell its shares, and the emergence of truth sends the investors' share values into oblivion.

▪ Ponzi scheme: The brilliant and charismatic "hub" fraudster attracts money from new investors and uses it to pay "returns" to earlier-stage investors, rather than investing or managing it as promised. Thus, a fake phenomenal "track record" is created, attracting more money, but there's no "track". Like pyramid schemes, ponzis require a steady, often growing, stream of new incoming cash to stay afloat. Pyramids must continuously attract new investors, but ponzis can survive on new money from existing investors. The bubble bursts when the inflow slows down, the "returns" must outpace the inflow, or when investors rush to withdraw their money. Such was the fate of the legendary Bernard Madoff scheme in our recent memory, bashing many affluent, sophisticated individuals, pension plans, and institutions' capital accounts; their trusting superficial due diligence failed to detect the brilliant deception.

3. Mortgage and lending fraud:

Homebuyers and lenders falsify information, such as inflated appraisals, overstated income, and insertion of unauthorized payment guarantors. It's in new and modification loan applications, foreclosure prevention, etc., often by predators claiming to work miracles for credit-impaired victims for an up-front fee. The "miracle" is their quick and total disappearance, instead. Many lender banks have failed, trying to boost their profits and please their officers and shareholders by making substandard loans supported by their own document fraud.

Fraudsters find financial distressed prospects via public disclosures such as foreclosure notices, and mass-marketing advertising. Then some win prospects' confidence by implying an affiliation with a government agency.

Some common schemes: Appraisal fraud happens when the commission-paid loan originator, sometimes assisted by the fee-paid appraiser, inflates the appraisal factors. In the mortgage rescue and loan modification scheme, the above up-front- fee "miracle" happens. It also happens, along with exhorbitant charges and pie-in- the-sky marketing, among reverse mortgage scam (as opposed to the many legitimate and honorable) practitioners. Loan origination schemers do all of those, plus falsify employment and income figures.

4. Mass marketing and other fraud:

Perhaps the most widespread category, these schemes rain down upon on all of us every day and via every medium. So, let's give it priority attention first thing next time. Stay tuned!

Meanwhile, I encourage you to acquire "Taking Action": www.saveandinvest.org/file/sites/default/files/Taking-Action-An-Advocates- Guide-to- Assisting-Victims- 0f-Financial-Fraud.pdf.

This story was originally published July 7, 2016 at 5:18 PM with the headline "Welcome to the Club — Part 2 | Real Life."