Scams & Schemes Archives - NorthStar Capital Advisors

How SCAMS Fool Smart People & How to Avoid BEING TAKEN

DO YOU THINK YOU’RE TOO SMART TO BE SCAMMED?

About 4 out of 5 people say yes.¹ Most also believe they’re better than others at spotting scams.² Yet, scams work—and they’re more prevalent and profitable than ever before.³ In fact, every 15 seconds, someone’s getting scammed.⁴

Each year, that’s billions lost. Seniors alone lose at least $2.9 billion a year to con artists.⁵ And they aren’t even the most vulnerable marks. Millennials are.⁶

So, why are financial scams more rampant and lucrative than ever before? Technology and the internet have been key. They’ve given scammers a better smokescreen and a global reach. They’ve also made it easier to perpetrate mass fraud schemes.⁷

Beyond having better tools, scammers also have better prey these days. The uncertainties of the day have made it easier to manipulate and con people.⁸ After all, we’re naturally averse to uncertainty.⁹ It scares us.¹⁰ It makes us desperate for stability and impulsive when a golden opportunity seems to arise.¹¹

That’s an ideal combination for scammers. And it’s why financial fraud spiked during the pandemic, just like it did during the Great Recession of 2008.¹²

That paints a dark picture, but it’s not all bad news. If you know what modern cons look like, you can easily spot and avoid them.

What Multi-Billion Dollar SCAMS Look Like

1. IMPOSTER SCAMS

Imposter scams involve someone posing as a person you trust as a way to steal from you. They might pretend to be from the government or tech support, or a family member having an emergency. In 2019, they drained bank accounts of more than $667 million, with the average victim losing about $700.³

To spot an imposter scam, always be suspicious of out-of-the-blue callers or new online “friends” requesting wire transfers, payments by gift cards, or access to your computer. Ask for a number to call them back, then contact the agency directly to confirm what the caller told you.

2. IDENTITY THEFT

Identity thieves steal and use personal information for financial gain. About 1 in 3 Americans have been, or will be, the victims of identity theft. About 1 in 5 will be victimized more than once. Credit card fraud is the most common type of identity theft, followed by loan fraud and bank fraud.³ In 2019, child identity theft alone resulted in more than $540 million in losses.⁹

You can protect yourself against identity theft by safeguarding your personal information and records. Shred sensitive documents, regularly change your passwords, and monitor your credit report routinely. Address any suspicious charges or new accounts as soon as possible.

3. SHOPPING SCAMS

Online shopping scams offer great deals on luxury items or something for free if you pay for shipping. While some just want to steal your cash, others try to get you to click on an ad that’ll download a virus or malware to steal your information.¹⁰ In 2019, more than $136 million was lost to shopping scams.³

Avoid shopping scams by always checking out return/refund policies before making a purchase. Pay by credit card, keep receipts for online purchases, and carefully review your credit card charges each month for any suspicious activity.

4. JOB OPPORTUNITY SCAMS

These scams promise opportunities to work from home, start your own business, become a mystery shopper, and more. No matter what income opportunity is presented, they all ask for money up front.¹¹ In 2019, these scams raked in about $85 million, with the average victim losing about $1,300.³

If you’re considering a new business opportunity, avoid a scam by doing your homework. Research opportunities before giving up cash or personal info. Check for any complaints against the company presenting the offer, and always get details up front, in writing.

5. PRIZE SCAMS

You’ve just won! But you have to pay some fee or share some personal information to collect your prize. That’s how lottery and sweepstakes scams work. They try to manipulate you once you’re excited and get you to act quickly.¹² It’s how they stole more than $121 million from Americans in 2019.³

Remember, legitimate sweepstakes and lotteries never require payment for prizes you’ve already won. If you need to pay to collect a prize, it’s a scam. If someone claims to be from a legitimate company, like Publishers Clearing House, look up the company’s phone number and call for confirmation.

How to Turn the Tables on SCAMMERS & Protect Your Finances

You never know when or how you may be targeted by a scam.

Con artists can bait you at any time, and their schemes are becoming increasingly sophisticated and organized.

Some con artists are even joining respected organizations to appear more trustworthy and put a legitimate face on their schemes. Bernie Madoff is a prime example. It’s how he was able to run one of the largest Ponzi schemes in history.¹³

Yet, as tricky as financial fraudsters can be, they aren’t rocket scientists. Remember, no matter how fancy a con artist’s tricks or disguises may be, they ALL rely on the same tactics.

They stress urgency and exclusivity, emphasizing how special you are to have been selected for some opportunity or offer. They play on emotions, like fear and excitement, and they may even present themselves as experts. Above all, they always demand money or information up front before you get anything.¹⁴

Of course, some of these features aren’t exclusive to money scams. Some legitimate opportunities will be time-sensitive or require something up front.

With financial fraud, however, you can usually expect at least one big red flag—like wildly poor grammar, an out-of-the-blue notice of a winning or penalty, or a request to wire money via Western Union or MoneyGram.¹⁵

All that can be easy to overlook when you’re dazzled by an offer for the first time. These details are easier to see as red flags, though, when you take a second or third look.

So, always take your time when you’re considering any new financial offer or investment opportunity.

Ask questions, be skeptical, and seek out feedback from someone you trust.

And if you are victimized by a scam, report it to the Federal Trade Commission here or the Federal Bureau of Investigation here so authorities can take action.

As advisers, we’ve seen how easy it is for people to get swept up and swindled by financial scams, especially when economic turbulence hits. We’ve also helped my clients weigh their options, consider fresh angles, and make strategic decisions that better support their financial goals.

If you’re considering a new investment or you’re thinking of ways to scam-proof your finances, let’s talk. Call us at the number below. We’d love to hear about the opportunities or strategies you’re considering and share some helpful advice.

SOURCES

1 – https://www.getsafeonline.org/news/consumers-think-they-are-too-smart-to-be-scammed/

2 – https://www.nextgov.com/ideas/2020/05/people-think-theyre-too-smart-fall-phishing-scams/165197/

3 – https://www.ftc.gov/reports/consumer-sentinel-network-data-book-2019

4 – https://money.cnn.com/2016/09/20/news/financial-fraud-every-15-seconds/index.html

5 – https://www.aging.senate.gov/press-releases/stopping-senior-scams-efforts-to-prevent-fraud-targeting-older-americans-examined-by-senate-aging-committee

6 – https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2017/consumer_sentinel_data_book_2017.pdf

7 – https://www.fbi.gov/investigate/organized-crime

8 – https://www.cnbc.com/2020/03/20/coronavirus-scams-on-the-rise-mimic-fraud-in-2008-financial-crisis.html

9 – https://www.experian.com/blogs/ask-experian/the-emotional-toll-of-child-identity-theft/

10 – https://www.consumer.ftc.gov/blog/2017/03/some-online-deals-charge-dont-deliver

11 – https://www.consumer.ftc.gov/features/feature-0019-business-opportunity-scams

12 – https://www.consumer.ftc.gov/articles/0199-prize-scams

13 – https://money.cnn.com/2008/12/29/news/newsmakers/zuckoff_madoff.fortune/

14 – https://onlinelibrary.wiley.com/doi/abs/10.1111/spc3.12115

15 – https://scambusters.org/scamlanguage.html

When promised quick profits, respond with a quick “no”

Warren Buffett is one of the most successful and sage investors alive today. Students of investing anxiously await his annual letter to shareholders to glean pearls of the wisdom from this master.

Here’s one of our favorite Warren Buffett quotes from the 2014 letter:

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.’”

Unfortunately there are many people that are victimized by financial fraudsters. It happens everywhere and all the time. For example, in 2014 a Charlotte, NC man, Mitchell Brian Huffman, was ordered to a pay $2.1 million civil penalty for operating a Ponzi scheme that bilked clients out of about $3.2 million.

Huffman told his 30 victims that he was generating outrageously high annual rates of return of 100% to 150% using a proprietary trading program. Huffman used their money to fund a lavish lifestyle including classic cars and luxury vacations.

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

Not Googling a New Investment Advisor, Seriously?

It’s hard to believe, but there are people who sign on with a new financial advisor without bothering to do even the bare minimum due diligence. Consider the sad story of fraudster Janamjot Singh Sodhi who ran a Ponzi scheme promising high rates of return in a relatively short period of time.

Sodhi solicited and received funds from investors starting in 2005 and through the fall of 2011 despite the fact that

The New York Stock Exchange permanently debarred him in January 2006, and
The California Department of Corporation ordered Sodhi to cease and desist from dispensing investment advice in California.

Potential investors and soon-to-be victims could have easily learned about these serious redflags had they bothered to simply google “Janamjot Singh Sodhi”. Sodhi did not use an alias so the information and fraud was in plain sight.

“Forget about hiring an attorney or paying for a background check. If you just typed his name into Google you could find out that before he solicited you he was barred by the NYSE and threatened by the state of California. … People spend more time buying a used car for $2,000 than giving $10,000 or $1 million to someone they never met or checked out to invest.” This from Bill Singer, a lawyer who specializes in investor fraud.

Sodhi will spend the next four years and nine months in jail and required to pay back the $2.4 million he stole from investors.

Source: CNBC

Rich Dad, Poor Dad, Bankrupt Dad?

You’ve probably heard of Robert Kiyosaki through his best-selling book series, Rich Dad, Poor Dad. Kiyosaki holds himself out as a self-made wealth guru who is happy to share the secret money-making strategies of the wealthy.

The tactics that he has advocated range from silly to illegal and include things like insider trading, buying multiple real estate properties for no money down, and buying stocks on margin via unfunded brokerage accounts.

And you can add bankruptcy to Kiyosaki’s highly questionable list of strategies. One of Kiyosaki’s businesses, Rich Global LLC, filed for bankruptcy protection in 2012 after it was ordered to pay a $24 million settlement. Kiyosaki will not be putting any of his personal fortune toward the settlement.

There is no evidence that Rich Dad, the man who allegedly imparted all these money-making secrets to Kiyosaki, ever existed. Nor is there any evidence that Kiyosaki amassed any significant wealth before the publication of Rich Dad, Poor Dad in 1997. Nonetheless, Kiyosaki is now reportedly worth $80 million!

In all likelihood, Kiyosaki did not get wealthy using the schemes he pushes in his books, but through proceeds of his book sales and personal appearances. He got wealthy selling the dream and illusion of get-rich-quick schemes.

source: Forbes

Two Deadly Assumptions

We live in a world that is replete with financial scams. Here are two classic and deadly assumptions that can rapidly separate you from your money.

Deadly Assumption #1 — The guy belongs to my church / temple / country club / ethnic group, of course he’ll look out for me.

Maybe he will, but is affinity a good enough reason to trust a financial advisor? Quarterback Mark Sanchez found out the hard way that this sort of thinking can easily lead one into the arms of a predator…

From ThinkAdvisor:

Former New York Jets quarterback Mark Sanchez and other professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment advisor who appealed to their Christian faith.

Sanchez and Major League Baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. The athletes all used the same broker, Ash Narayan, formerly of RGT Capital Management. The advisor gained their trust through religion and their interest in charitable works, the SEC said.

Deadly Assumption #2 — This advisor works for a big, prestigious firm and the product is very sophisticated, I deserve this special access.

Structured products are a minefield for the wirehouse wealth management client because the firms’ “producers” are highly incentivized to sell them. Anything being pushed on the brokerage sales force by the home office is, by definition, perilous for the client. Because if it were so good, then no commission would be necessary – the product would be found by savvy investors and there would be no need for extra compensation. But structured products are unnecessary for most investors, although profitable for the firms that create them, hence the degree to which they’re sold to people.

As proof of this, you almost never hear of a fiduciary advisor recommending this stuff. It’s not even in the lexicon for a client-centric practice or an unconflicted advisor.

Source: TRB

20 People You Don’t Want to Invest With

Identifying what does NOT work is often a great process for narrowing your list of options of what you should do. In that spirit, here’s Ben Carlson’s list of 20 people you wouldn’t want to invest with:

1. People that are unwilling or unable to admit their limitations.

2. People that are consumed by ideological or political beliefs when making investment decisions.

3. People that are unwilling to say “I don’t know.”

4. People that don’t learn from their mistakes.

5. People that blame external forces for their failures.

6. People that are unable to effectively communicate their process.

7. People that make guarantees about the markets in the future.

8. People that are more interested in selling you a product than creating a beneficial long-lasting client relationship.

9. People that try to invest in the markets as they “should be” instead of how they actually are.

10. People that are more worried about what others are doing instead of focusing on their own process and goals.

11. People that take the markets personally and let their emotions drive their decisions.

12. People that assume “trust me, I got this” is good enough in terms of explaining their strategy.

13. People that believe in conspiracy theories and think the system is out to get them.

14. People that are more worried about sounding intelligent than actually making money.

15. People that obsess over the market’s short-term movements.

16. People that would rather take you golfing than help you solve your problems.

17. People that make you feel like they’re doing you a favor by letting you invest your money with them.

18. People that try to dazzle you with 200 page pitch books.

19. People that are more worried about gathering future clients than taking care of their current ones.

20. People that tell you what you want to hear instead of what you need to hear.

Source: AWOCS

I Can Teach You How to Time the Market [cartoon]

Regulators Urge Small Investors to Avoid Non-Traded REITs

REITs stands for Real Estate Investment Trusts. REITs sell like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Real Estate is historically a good performing asset class. Allocating approximately 10% of your stock portfolio is a generally prudent choice. However, state regulators are seeing more and more trouble with a certain type of real estate investment: non-traded REITs.

Non-Traded REITs
Unlike normal REITs, non-traded REITs do not trade on a securities exchange. They have several very significant issues:

1. Non-traded be can very illiquid.
2. They can be very difficult or impossible to price on a regular basis.
3. It can be difficult to exit the investment.

Front-end fees can be as much as 15% (much higher than traded REITs due to the limited secondary market)

Non-traded REITs buy office buildings, stores, and other properties. They are sold directly to private investors by financial advisors and brokers.

State Securities Regulators Worried
Regulators are concerned that small investors are not fully aware nor understand the risks associated with non-trade REITs. States are on the verge of adopting new restrictions to protect “mom and pop” investors including:

Limit how much an individual’s net worth could be put into any a single REIT
Limit the ability of REITs to pay dividends immediately after raising new money (to avoid a Ponzi-scheme like dynamic of paying old investors with new investors’ money)

The State of Massachusetts has brought enforcement actions against brokerages for improper sales of non-traded REITs including

LPL Financial
Ameriprise
Commonwealth Financial
Lincoln Financial

Source: WSJ

Equifax Data Breach: What You Need To Know

Late last week Equifax announced it was hacked and personal information for 143 million Americans was stolen. If you use credit of any kind (credit cards, home mortgages, student loans, etc.) as most people do, there’s a 50% chance your personal information is involved. Here’s a run down on what happened, the risks, and the options you should consider to mitigate the impact to your personal finances.

Who is Equifax?
Equifax is one of the big three credit reporting agencies in the United States. It collects large amounts of personal information about anyone who has received credit through credit cards, mortgages, car loans, and student loans. Companies use credit reports from Equifax (plus TransUnion and Experian) to extend credit to consumers and conduct background checks for employment and housing.

What happened?
Hackers broke into Equifax’s database and stole personal information for 143 million people. The breach lasted from mid-May through July 2017. Equifax revealed the data breach publicly on September 7, 2017. Stolen information includes people’s names, Social Security numbers, birth dates, addresses and, in some cases, driver’s license numbers. Hackers also accessed credit card numbers for some 209,000 people and dispute resolution communications for about 182,000 people.

How could you be at risk?
Hackers have or will very likely sell this personal information to criminals who can then perpetrate identity theft. With that information, they can open bank accounts, new credit cards, or even drivers’ licenses in your name. Criminals could also file fraudulent claims for your tax refund or your Social Security benefits.

What steps should you consider?
Remember there’s a good chance that you’ve been exposed. To mitigate the potential damage, the Federal Trade Commission recommends you take immediate steps to protect your information from being misused:

Visit Equifax’s website, www.equifaxsecurity2017.com
Find out if your information was exposed. Click on the “Potential Impact” tab and enter your last name and the last six digits of your Social Security number. Your Social Security number is sensitive information, so make sure you’re on a secure computer and an encrypted network connection any time you enter it. The site will tell you if you’ve been affected by this breach.
Whether or not your information was exposed, U.S. consumers can get a year of free credit monitoring and other services. The site will give you a date when you can come back to enroll. Write down the date and come back to the site and click “Enroll” on that date. You have until November 21, 2017 to enroll.
You also can access frequently asked questions at the site.

Here are some other steps to take to help protect yourself after a data breach:

Check your credit reports from Equifax, Experian, and TransUnion — for free — by visiting annualcreditreport.com. Accounts or activity that you don’t recognize could indicate identity theft. Visit IdentityTheft.gov to find out what to do.
Consider placing a credit freeze on your files. A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that a credit freeze won’t prevent a thief from making charges to your existing accounts.
Monitor your existing credit card and bank accounts closely for charges you don’t recognize.
If you decide against a credit freeze, consider placing a fraud alert on your files.A fraud alert warns creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you.
File your taxes early — as soon as you have the tax information you need, before a scammer can. Tax identity theft happens when someone uses your Social Security number to get a tax refund or a job. Respond right away to letters from the IRS.

Our CEO Chris Mullis visited Equifax’s website to determine if his family’s information was exposed. His information is not involved, but unfortunately his wife is not so lucky. Equifax immediately allowed Chris’ wife to enroll in its TrustedID Premier monitoring program. Their personal experience just underscores the fact that basically one of every two Americans is likely impacted by the Equifax data breach.

Please take steps to protect yourself from this data breach and share this alert with family and friends.

If you have any questions or need any help, please give us a call.

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