Dale Ishida Suezaki and Taylor Easley are financial advisers at Morgan Stanley, 329-7979. Dale Ishida Suezaki and Taylor Easley | Financial Advisers ADVERTISING Financial self-defense: the most common investment scams and how to avoid them Every year, scams are becoming
Dale Ishida Suezaki and Taylor Easley | Financial Advisers
Financial self-defense: the most common investment scams and how to avoid them
Every year, scams are becoming increasingly complex as con artists discover new, sophisticated ways to fleece the public. Unfortunately, even the well-known deceptions still fool victims. Whether new or old, con artists prey upon the same vulnerabilities in our human nature. We can better protect ourselves by first knowing what kind of fraudulent operations exist and how they function.
Affinity fraud
According to the 2005 U.S. Securities and Exchange Commission report, “Affinity Fraud: How To Avoid Investment Scams That Target Groups,” affinity fraud is an investment scam that preys upon members of groups, such as religious or ethnic communities, professional groups or the elderly, by exploiting the trust and friendships that exist within the group. Victims abandon their natural sense of caution and good judgment because the swindler pretends to be, or may be, one of the group. The most common affinity scams are pyramid schemes, which create the false illusion that an investment program is successful by taking money from a new investor and using it to make payments to previous investors.
Prime bank schemes
Victims are taken in by the lure of a very high-yield, tax-free return that, supposedly, is only available to extremely wealthy individuals through off-shore trades of bank notes. You are required to execute confidentiality agreements and not consult an attorney, accountant or financial planner. The secrecy is exciting and makes you feel exclusive and important. There are no such legitimate programs. Once your money is turned over, it is gone — the only person enjoying a high-yield, tax-free return is the con artist.
Personal information scams
We’ve all heard of identity theft: Thieves steal your private financial information and use it to open credit cards in your name, buy a car, get a driver’s license, open bank accounts and write bad checks. They can steal your information directly by taking your wallet, checks, financial statements or credit card receipts from your mailbox or trash can. Thieves can get the same information indirectly by hacking into computers, stealing client data while on the job or diverting your mail with a change-of-address form.
Frequently, victims will give an unscrupulous person their private financial information simply because they need help. The paperwork that senior citizens must deal with for medical insurance claims and prescription benefits is overwhelming. Con artists may use the phone or e-mail to pose as the agent of a legitimate health or life insurance company. They may offer to fill out forms, file claims, facilitate payments or straighten out a fake problem with your account, meanwhile asking to verify your Social Security number or your bank account number.
Ways to protect yourself
— Discuss with others. Many an investor has been spared tragedy because they had the good sense to ask an accountant, an attorney or a financial planner to review and evaluate an investment before getting into it. A licensed financial adviser can help you determine if the investment is suitable for you and your personal financial goals, and an attorney may see warning signs that you have missed regarding its legitimacy.
— Insist on written information on an investment product — and read it carefully. Ask tough questions and check out everything. Be very skeptical of an investment that you must keep confidential and is not in writing.
— Never let someone pressure you to make an immediate decision. Don’t feel like you’re missing an opportunity if you don’t rush into an investment. Wise financial decisions take time to investigate and evaluate.
— Beware of strangers who guarantee spectacular profits and quick returns. These are hollow lures to encourage you to relinquish your money. Successful con artists can sound very professional and make the riskiest and strangest deal sound safe and legitimate.
— Never give out your personal financial information unless you have initiated the contact. Invest in a shredder to destroy credit card offers and any other papers you discard that contain private information.
— Report fraud. Don’t let fear or embarrassment keep you from telling the authorities about abuse. Frequently, victims keep quiet because they feel humiliated for falling for the scam and don’t want their family or friends to find out. Reporting a scheme will help others to not fall prey.
The Web sites for the Federal Trade Commission, the Securities and Exchange Commission and the North American Securities Administrators Association contain updated information about financial scams.
Articles are published for general information purposes and are not an offer or a solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives. Morgan Stanley does not render advice on tax or tax-accounting matters.
Dale Ishida Suezaki and Taylor Easley are financial advisers at Morgan Stanley, 329-7979.
