Con Artists: How To Spot and Stop Them
Make sure you and your family never fall prey to the schemes and cons that pervade all aspects of American life. Learn to recognize con artists and send them on their way before parting with any of your hard-earned money.
The successful con artist approaches victims with a nice guy approach. Behind this friendly exterior is a shrewd psychologist who can break down his victims' resistance to his proposals. The typical con artist has a good sense of timing and sincerely believes his victims deserve to be taken advantage of.
Being well-informed and skeptical are your best means of protection. This Financial Guide tells you how to spot a scam. It provides lists of "buzzwords" used by con artists, strategies for knowing which sales pitches are legitimate, and ways to fight back.
Anyone can fall victim to a con game, even someone who thinks they are too intelligent or sophisticated to be conned.
Many victims share certain characteristics. Often, but certainly not always, they are older, female, and live alone. They trust others and either need or want more income. Loneliness, willingness to help, and a sense of charity are characteristics a con artist will exploit to gain a victim's cooperation.
The con artist exploits his victim's life insurance benefits, pensions or annuities, retirement nest eggs, home equity, or other assets. And he will usually have the willing cooperation of his victim.
It is difficult to spot a con artist by his looks alone. But his words or expressions often give him away. These buzzwords include the following. A red flag should go up immediately when you hear these:
It's free! Few things are really free. If you are told it's a free vacation, free cellular phone, free gift, investigate it. What else do you have to do to get the "freebie?" Pay shipping and handling charges? A gift tax or redemption fee? Get yourself to some distant destination? Sign up for a month or two of service? Buy three and get the fourth free?
It's 50% off. Off of exactly what? The regular retail price? The manufacturer's suggested price? The bulk price? The sticker price? Ask for written verification of the original price.
It's a going-out-of-business sale. Stores along parts of Fifth Avenue in Manhattan have been going out of business for years...and are still in business. Be particularly cautious in the crowded tourist and shopping sections of any major city or resort. Even when a company is honorably closing its doors, they could be posting artificially high prices and then marking them down. Their incentive to unload merchandise is strong. If you find what you believe is a good deal, read the warranty carefully -- if something goes wrong with your CD player or refrigerator, you cannot take it back if the store is closed. But can you take the item to a service center or other designated repair place?
It's factory to you. We match lower prices. It's the lowest price in town. You have been specially chosen. These are more often than not just come-ons to get you into the store. Will you really shop around to make certain it is the lowest price in town? Will you really ask management to lower the price because another store has a better deal? You need time and assertiveness to make these deals really work.
You've just won! Sweepstakes and vacation prizes cram everyone's mailbox. Some are real, but many are not. If you are asked to pay a fee in advance in order to be a possible winner, don't grab the bait. This practice is known as an illegal lottery. And those low cost vacation trips generally come with extra charges or difficult-to-meet conditions; the Federal Trade Commission is constantly issuing warnings about them. You may be asked to join a travel club, be charged extra for in-season rates, or get air fare only one way. Be sure to inquire.
Work at home and make a fortune. Some of these offers are legitimate, but there are also hundreds that are pyramid schemes requiring you to make a high initial investment that you are unlikely to ever get back or requiring you to bring a number of other people into the business. A recent deal that swept the country involved sending $5 for information about stuffing envelopes at home. Once you did that, you were asked for $200 to $500 for supplies, and then another $25 or $50 for something else. . .the pyramid, made up of your money, simply grew higher and higher.
We'll get you money for your down payment. New home buyers are ripe for this one. The caller promises you money for a pre-paid fee, which is often an outrageous amount -- $1,000 or more. Later on he gets back to you with the surprising news that he just couldn't get you credit. Now you're out the $1,000 and no closer to buying the house.
These coins will put your child through college. One year the Pennsylvania Attorney General's office received over 300 complaints from people who had lost money on phony coin deals; the average loss per person was $10,000. The coins were never delivered. We do not wish to discourage you from buying legitimate coins; just make sure to use a reputable dealer.
We have an IRS-endorsed retirement plan. Phony telemarketers have promised people a retirement with an IRS-approved, IRS-endorsed plan. To set the record straight, the IRS does not endorse anything. Don't put your money anywhere but the bank, mutual fund or brokerage firm where you have an established IRA.
Cash only. Why is cash necessary for a proposed transaction? Why not a check?
Secret plans. Why are you being asked not to tell anyone?
Get rich quick. Any scheme should be carefully investigated.
Something for nothing. A "retired" swindler once said that any time you are promised something for nothing, you usually get nothing.
Contests. Make sure they are not "come-ons" to draw you into a money-losing scheme.
Haste. Be wary of any pressure that you must act immediately or lose out.
Today only. If something is worthwhile today, it is likely to be available tomorrow.
Too good to be true. Such a scheme is probably neither good nor true.
Last chance. If it is a chance worth taking, why is it offered on such short notice?
Left-over material. Left-over materials might also be stolen or defective.
In fact, any cold call trying to sell you a half-acre ranch in some faraway state, aluminum siding, a new chimney flue, or even tax shelters, cattle, or anything else you know nothing about, should set off alarms.
We can clean up your credit card debt. The latest version of this scam claims to give you a new credit report within 30 days for a flat fee. However, after paying for the service, the scam artists call back, informing you that they couldn't get the job done. Only you can repair your credit report. Also, watch out for those who tell you that by obtaining a new Taxpayer Identification Number or TIN, you get a new credit report. The TIN is your Social Security number.
The possibilities are infinite, but some of the more common con games you should be aware of involve the following (some of which are described in more detail below):
- Home improvement: Home repair or improvements you don't need that are recommended by a phony city inspector, or termites or pests you don't have.
- Bank: A false bank examiner, or a pigeon drop (false bank employee who takes your deposit or "tests the honesty of bank employees" and thereby gets his or her hands on your cash).
- Investment: Franchises, vending machines, land frauds, theft of inventions, securities investments, work-at-home.
- Postal frauds: Chain letters, magazine subscriptions, unordered merchandise, correspondence courses.
- Others: Bait and switch, charity rackets, computer dating, debt consolidation, contracts, dance lessons, freezer plans, psychic fraud, fortune tellers, health clubs, job placement, lonely hearts, medical quackery, missing heirs, referral sales, talent scouts, pyramid schemes, fake officials.
Most successful cons are modern versions of old schemes. For example, the old "salting the gold mine" scheme is still being practiced, but today's salting occurs in living rooms rather than abandoned mines.
In the old ruse, mine owners would place a few gold nuggets in used-up mines so they could sell them for inflated profits. In one recent scheme a con artist bought six color television sets at the regular price from a retail store, and then sold them, still in their cartons, to six prominent local persons for one-fifth of their original price. Later, he hired several high school students as telephone solicitors to sell carloads of TV sets purchased new from a bankrupt retail chain. When potential customers balked, the con artist used as references the original six customers who had been salted. Before the police were alerted, he collected almost $60,000.
The old "bank examiner" scheme still exists, and it is working well, particularly among older widows. In this scheme, the con artist, posing as a bank examiner, asks the victim to help him test the honesty of bank employees by withdrawing substantial funds. When the funds are handed over to the con artist for "examination," he issues the victim a worthless receipt and disappears.
Postal authorities warn against mail-order swindles, such as phony work-at-home schemes requiring cash deposits or payments. Among all arenas for con-game activity, these are probably the most active and productive for the con artist
The most insidious scam involves the perpetrator offering you false legal assistance after he has already swindled you. For instance, you have already lost money in an illegitimate deal and you get a call from someone posing as a federal official or lawyer who claims he can get your money back, for a fee or a percentage of the total amount.
Here are five simple questions that will expose even the most clever of con artists.
- How did you get my name? If you fail to get a believable answer, you can assume it was from the phone book, which suggests a randomness in the selection of your name that should make you suspicious.
- What risk is involved? You know that every investment carries some risk and a 100% fully guaranteed deal does not exist.
- Can you send me written information? Scamsters would rather hang up and risk losing you than put something in writing. They often try to get around this question by saying there isn't time.
- Will you explain your offering to my lawyer? You will either be told there isn't time, or the caller will ask for your lawyer's address and never send anything. You can, of course, check this out by asking your lawyer if he or she has been contacted by this person.
- Can you give me references? Follow up on any you are given.
Tip: Write down the answers you receive; they may amaze you.
Tip: If by some miracle you are satisfied with the answer to all five questions, then make two phone calls, to: The National Financial Fraud Exchange (800-822-0416) and the North American Securities Administrators Association (202-737-0900). They will run the person's name through their systems to see if any complaints have been filed against him or if any SEC violations are on record. Details on both groups are given at the end of this article.
Here are 10 steps you can take to avoid becoming the victim of a con artist:
- Don't let yourself be hurried. No matter what you are told, almost every good deal will remain a good deal for at least a week. The small percentage of good deals that will not be available tomorrow is not worth the risk needed to find out. There may be times when you will want to make a prompt decision, but not when it is an irrevocable financial commitment to buy a product or invest in something you are not familiar with from a caller you don't know. Purchase decisions should never be made under pressure.
- Always ask for information by mail about the product, service, investment or charity and about the organization selling it. For legitimate firms, providing written information should not be a problem. But con artists will not want to give you time to consider the legitimacy of their offer, may not have written material available, or may not want to risk a run-in with legal or regulatory authorities by putting fraudulent statements in writing. Always insist on having enough time to study any information provided before being contacted again or agreeing to meet with anyone. Certain high-pressure telephone calls are solely for the purpose of convincing you to meet with an even higher-pressure sales person in your home.
- Do not make any investment or purchase you don't fully understand. Unless you fully understand what you are buying or investing in, you can be burned. Swindlers seek out individuals who do not know what they are doing; often attempting to flatter them into thinking they are making an informed decision.
- Ask what state or federal agencies the firm is regulated by and/or is required to be registered with. If you get an answer, ask for a phone number or address to verify it. If the firm says it is not subject to any regulation, increase your level of caution.
- Check out the organization. Swindlers want you to assume the information they provide is accurate. They know most people never bother to follow check references. It is far better to contact the relevant agency and obtain the information while you still have your money.
- If an investment or major purchase is involved, request that information also be sent to your accountant, financial advisor, banker, or attorney for evaluation. Swindlers do not want you to seek a second opinion. Their reluctance or evasiveness could be your tip-off.
- Ask what recourse you would have if you make a purchase and are not satisfied. If there is a guarantee or refund provision, be sure to get it in writing, and be satisfied that the business will stand behind its guarantee before you make a final financial commitment.
- Beware of testimonials that you may have no way of investigating. They may involve nothing more than someone being paid a fee to speak well of a product or service.
- Don't provide personal financial information over the phone unless you are absolutely certain the caller has a bona fide need to know. That goes especially for your credit card number and bank account information. The only time you should give anyone your credit card number is when you have decided to make a purchase and want to charge it. If someone says they will send a bill later but they need your credit card number in the meantime, be cautious; first make certain you are dealing with a reputable company.
- If necessary, hang up or walk away. If you are simply not interested, if you become subject to high-pressure sales tactics, if you cannot obtain the information you want or get evasive answers, or if you hear your own better judgment whispering that you may be making a serious mistake, just say good-bye.
The FTC (Federal Trade Commission) offers these tips to avoid fraudulent vacation offers:
- Be wary of "great deals" and low-priced offers. Few legitimate businesses can afford to give away products of real value.
- Don't be pressured into buying. A good offer today should be available tomorrow.
- Ask detailed questions.
- Get all the information in writing before you buy anything.
- Don't give your credit card number over the phone unless you know the company.
The FTC has published a free brochure, Telemarketing Travel Fraud, to help you avoid these scams. For a copy, contact the agency at 1-877-FTC-HELP, or see its Website at http://www.ftc.gov, and click on "Consumer Protection."
Most telephone sales calls are from legitimate businesses. But wherever honest firms search for new customers, so do swindlers. Phone fraud is a multi-billion dollar business that involves selling everything from bad or non-existent investments to the peddling of misrepresented products and services. Everyone who has a phone is a prospect; whether you become a victim is largely up to you.
There is no way to determine whether a sales call is on the up and up simply by talking on the phone. No matter what questions you ask or how many you ask, skilled swindlers have ready answers. For this reason, sales calls from persons or organizations that are unknown to you should always be checked out before you actually buy or invest. Legitimate callers have nothing to hide.
Phone swindlers are likely to know more about you than you know about them. Depending on where they got your name in the first place, they may know your age and income, health and hobbies, occupation and marital status, education, the home you live in, what magazines you read, and whether you've bought by phone in the past.
Even if your name came from the phone book, telephone con men and women assume that you would be interested in having more income, that you are receptive to a bargain, that you are basically sympathetic to people in need, and that you are reluctant to be rude. As admirable as such characteristics may be, they help make the swindler's job easier. Swindlers also exploit less admirable characteristics, such as greed.
Fraudulent sales callers have one thing in common: They are skilled liars and experts at verbal camouflage, and their success depends on it. Many are coached to say whatever it takes by operators of the boiler rooms where they work at rows of phone desks, making hundreds of calls. Indeed, most victims of phone fraud think the caller sounded so believable.
Perpetrators of phone fraud are good at sounding as though they represent legitimate businesses. They offer investments, sell subscriptions, provide products for homes and offices, promote travel and vacation plans, describe employment opportunities, solicit donations, and the list goes on. Never assume you will know a phone scam when you hear one. Even if you have read lists of the kinds of schemes most commonly practiced, innovative swindlers constantly devise new ones.
Sadly, some families part with savings they worked years to accumulate on the basis of little more than a 15-minute phone conversation, less time than they would spend considering the purchase of a household appliance.
Be aware that the initiator of the phone call may be you. It is not uncommon for phone crooks to use mailings and advertise in reputable publications to encourage prospects to make the initial contact. So just because you may have written or phoned for additional information about an investment, product, or service does not mean you should be any less cautious about buying by phone from someone you do know.
Victims of phone fraud seldom get their money back or, at best, no more than a few cents on the dollar. Swindlers generally do the same thing other people do when they get money; they spend it.
- High-pressure sales tactics.
- Insistence on an immediate decision.
- The offer sounds too good to be true.
- A request for your credit card number for any purpose other than to make a purchase.
- An offer to send someone to your home or office to pick up your payment, or some other way of getting your funds more quickly.
- A statement that something is free, followed by a requirement that you pay for something.
- An investment that is without risk. Except for obligations of the U.S. Government, all investments have some degree of risk.
- Unwillingness to provide written information or references (such as a bank or name of satisfied customers in your area) that you can contact.
- A suggestion that you should make a purchase or investment on the basis of trust.
- Federal Trade Commission Tel. 1-877-FTC-HELP
The FTC has published a free brochure, Telemarketing Travel Fraud, to help you avoid these scams. For a copy, contact the agency at 1-877-FTC-HELP.
- National Highway Traffic Safety Administration: Tel. 800-424-9393
This agency has recall and safety information on new and used cars, child safety seats, tires, seat belts, bags, etc.
Members of the U.S. Tour Operators Association are required to post a $1 million bond to protect consumer funds. For information and a list of members, write:USTOA
211 East 51st Street, Suite 12B
New York, NY 10022
Sponsored by the National Consumers League.
- North American Securities Administrators Association
750 First Street, N.E., Suite 1140
Washington, DC 20002
Visit NASAA to find the phone number of your state's Securities Division; then, use it to check out any promoter or sales person trying to sell you an investment.
- The National Futures Association
300 S. Riverside Plaza, #1800
Chicago, IL 60606
Fraudulent Charities: How To Protect Yourself
By knowing the many ways that charities are regulated, both by the states and the IRS, you can better protect yourself against fraudulent charities and know that your charitable contribution will be properly used for the intended purpose. And if you do fall prey, you should know how to complain most effectively.
Giving to a charity is a worthy objective. However, for you and society to get the maximum benefit from your contribution, you need to give wisely and make sure that your contribution serves the intended purpose.
Related Guide: Please see the Financial Guide: CHARITABLE CONTRIBUTIONS: How To Give Wisely
If you aren't completely knowledgeable about your intended charities, you should review their operations and practices before giving. Even if the charity is a household name, its practices may be wasteful. For example, a major part of its receipts from contributors may be used not for charitable purposes but to pay an outside fundraiser.
Unfortunately, many charities go beyond wasteful practices and are outright frauds. This Financial Guide will discuss how the various states and the IRS regulate charities to minimize the abuses in this area and explains how to files a complaint against a phony charity.
Most state governments regulate charitable organizations. To obtain information on these regulations, which vary from state to state, contact the appropriate government agency (usually a division of the Attorney General or the Secretary of State). State government agencies do not approve charities. However, they do require charities to follow certain regulations.
Most states have registration and licensing rules requiring charities to file certain basic information, such as the official name, principal address, and purpose of the organization. This requirement generally applies to most charities, whether national or local, that solicit in the state.
Annual reporting is also a common state requirement and generally involves the filing of the charity's financial statements. In many cases, a copy of the charity's federal tax return (IRS Form 990) is accepted by the state as fulfilling its annual reporting requirements.
Planning Aid: For more information on general businesses and their practices, see Better Business Bureau.
Note: Churches and other religious organizations, as well as small charities that receive contributions below certain levels, are frequently exempt from state registration and annual reporting requirements.
Some states have specific regulations for professional fund-raisers used by charities. They may require the fund-raiser to register with the state and put up a bond ranging from $2,500 to $50,000 to reimburse the state for any fines and/or penalties imposed on the fund raiser.
Tip: Contact the appropriate state government agency to verify a charity's registration and to obtain financial information on a soliciting charity.
To obtain tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, an organization has to file certain documents with the IRS that prove it is organized and operated for specified charitable purposes. The IRS looks at these documents in terms of whether they meet the Code's requirements; it does not judge charities' worthiness.
Organizations with 501(c)(3) status are those that the IRS considers charitable, educational, religious, scientific or literary, those that prevent cruelty to animals, and those that foster national or international sports competition. When the IRS rules positively on an application, the organization is eligible to receive contributions deductible as charitable donations for federal income tax purposes. The charity receives a Determination Letter formally notifying it of its charitable status. Older charities may have a 101(6) ruling, which corresponds to Section 501(c)(3) of the current IRC. Churches and small charities with less than $5,000 of annual income do not have to apply to the IRS for exemption.
Related Guide: Please see the Financial Guide: ADVANCED CHARITY TECHNIQUES: Maximizing Your Deductions
Tip: IRS Publication 78, the "Cumulative List of Organizations," is an annual list of tax-exempt organization eligible to receive deductible contributions. Visit the IRS website for more information.
You can obtain three documents on a specific charity by sending a written request to the attention of the Disclosure Officer at your nearest IRS District Office. The IRS will charge a per-page copying fee for these items. To speed your request, have the full, official name of the charity, as well as the city and state location. These three publicly available documents are:
- Form 1023: the application filed by the charity to obtain tax-exempt status.
- IRS Letter of Determination: the two-page IRS letter that notifies the organization of its tax-exempt status.
- Form 990: the financial/income tax form filed with the IRS annually by the charity. (Charities with a gross income of less than $25,000 and churches are not required to file this form). Among other things, Form 990 includes information on the charity's income, expenses, assets, liabilities and net assets in the past fiscal year. Form 990 also identifies the salaries of the charity's five highest-paid employees. When contacting the IRS for copies, specify the fiscal year.
Tip: If your request for information involves only Forms 990, you can get a faster response by writing directly to the IRS Service Center where the charity files its return. Contact your nearest IRS office for the address of the appropriate Service Center.
The charity registration office in your state (usually a division of the state attorney general's office) may also have a copy of the charity's latest Form 990, along with other publicly available information on charities soliciting in your state.
A charity's application for tax-exempt status and its annual Form 990 must be made available for public inspection during regular business hours at the principal office of the charity and at each of its regional or district offices containing three or more employees. Although the charity is not required to provide photocopies of the return, it must have a copy on hand for public inspection.
Complaints about charities are uncommon. However, if sweepstakes prizes, membership benefits, the charity's magazine, or ordered merchandise is not received, donors may need to file complaints. Donors may also be concerned about duplicate mailings from the same charity or may wish to remove their names from the charity's mailing list.
Here is how to file a complaint:
- Put your complaint in writing. Clearly explain the problem and what specific action you want taken by the charity to resolve it.
- Include copies of all applicable documents with your complaint (for example, copies of canceled checks for merchandise ordered, copies of mailing labels in case of duplicate mailings, or copies of problem appeals).
- File your complaint with the Better Business Bureau online or by mail: BBB Wise Giving Alliance, 4200 Wilson Blvd., Suite 800, Arlington, VA 22203. Complaints can also be filed with government agencies, such as your state attorney general's office. Many states have consumer protection agencies and special offices to regulate charities.
- If your complaint involves activities not in accordance with the organization's tax-exempt purposes (for example, misappropriation of funds) contact the IRS, as well as your state attorney general's office. In addition, the U.S. Postal Inspection Service investigates charges of false representation and violations of the mail fraud statutes.
- Most state governments regulate charitable organizations. To obtain information on these regulations, which vary from state to state, contact the appropriate government agency (usually a division of the Attorney General or the Secretary of State).
- Contact the appropriate state government agency to verify a charity's registration and to obtain financial information on a soliciting charity.
- Contact your local Better Business Bureau to find out whether a complaint has been lodged against a charity.