Why Do Ponzi Schemes Continue to Plague Us?

Government regulators and private fraud fighters give repeated warnings to avoid a “too good to be true” investment program. It seems like investors are bombarded by messages about what not to do with their money, yet many continue to pour their money into new and clever Ponzi schemes. Why is society unable to stop the onslaught of fraudulent investment schemes?

There are two sides (at least) to every transaction in a Ponzi scheme: (1) the fraudulent promoter of an investment scheme; and (2) the defrauded victim.  We cannot control the fraudster’s conduct. The fraudster will continue to concoct new stories, deceitful schemes and believable promises, and there is nothing we can do to stem this damaging creativity that is intended to harm its victims.

The Limitations Of “What Not To Do” Investment Advice

However, we can control our own conduct. Investors start out holding their own money. They make the decision to hand it over to someone else’s control. The vast amount of public information available to investors about fraudulent schemes does a decent job of telling investors what not to do: Don’t invest in something that is too good to be true; don’t invest based on blind trust; don’t invest if the business model doesn’t make sense.

While that is very good general advice, it is too easily ignored or dismissed. Why? Because investors are blinded by their trust. They are looking for a good deal, and they assume that the people running the investment program are trustworthy. Investors’ trust, desire to turn a profit, and ignorance of the business lead investors to charge ahead, without doing any type of a proactive analysis.

Teach Investors What They Need To Do

Educating investors needs a major shift in focus. Instead of teaching investors what not to do, how about teaching them what they need to do - specifically, unequivocally, and with the confidence to demand answers to their questions?

Investors need lists of questions to ask, websites to search, and investigations to conduct. They also need to see in black and white what went wrong for victims who invested without conducting sufficient due diligence. They need to understand the psychology of the perpetrator, as well as to analyze their own reasons for investing.

Admittedly, I am biased on this subject. I recently published a comprehensive such guidebook for investors, Ponzi-Proof Your Investments: An Investor’s Guide to Avoiding Ponzi Schemes and Other Fraudulent Scams. Ponzi-Proof Your Investments accomplishes all of that and goes far beyond the over-generalized “too good to be true” advice that many government and private websites provide.

The following websites offer good advice, but they are not sufficient to either identify a fraud or to compel investors to take action. The quotes below highlight this shortcoming.

Limitations Of SEC Advice

The SEC website’s section on what you can do to avoid investment fraud says to “ask questions” but offers only the following advice:

“‘Ask Questions.’ That’s the best advice we can give you about how to invest wisely. We see too many investors who might have avoided trouble and losses if they had asked basic questions from the start.

We encourage you to thoroughly evaluate the background of any investment adviser or broker with whom you intend to do business – before you hand over your hard-earned cash. It doesn’t matter if you are a beginner or have been investing for many years, it’s never too early or too late to start asking questions. It’s almost impossible to ask a dumb question about how you are investing your money. Don’t feel intimidated. It’s your money at stake.”

Additional advice on the SEC website says things such as:


“>>If it sounds too good to be true, it is.
>> ‘Guaranteed returns’ aren’t.
>> Watch out for pitches that stress how “everyone is investing in this, so you should, too.” Scam artists often tell their victims that this is a once-in-a-lifetime offer and it will be gone tomorrow. But resist the pressure to invest quickly and take the time you need to investigate before sending money.”

Limitations of FINRA Advice

The FINRA website’s Education Guide “Scams And Swindles – An Education Guide To Avoiding Investment Fraud” states that the swindler wants to be your friend, will use high pressure sales tactics, will demand an immediate decision and will offer you something that is too good to be true. The advice offered is:


“>> Don’t be pushed into a quick decision
>> Always request written information
>> Never make any investment or purchase that you don’t fully understand.
>> Check out the company carefully (by contacting the regulatory agency)
>> Ask what recourse you would have should you make a purchase and are not satisfied.
>> Beware of testimonials you have no way of checking
>> Beware of fake websites.”

Limitations of NASAA Advice

The Investor Education section on the North American Securities Administrators Association website (www.nasaa.org) offers a little more specific advice on how to avoid becoming a victim.  It states:


“>> Contact your state or provincial securities regulator to see if the investment vehicle and the person selling it are registered.
>> Contact your local Better Business Bureau to see if any complaints have been filed against the venture’s promoters or principals.
>> Deal only with financial advisers, broker-dealers or financial institutions having a proven track record.
>> Ask for written information on the investment product and the business.
>> Don’t take everything you hear or read at face value. Ask questions if you don’t understand, and do some sleuthing for yourself. If you need help in evaluating the investment, go to someone independent whom you can trust such as an attorney or an accountant.
>> Steer clear of investments touted with no downside or risk”

Other Advice

Private organizations provide similarly general and reactive advice, although they vary in their specificity on what research and investigation to do. For example, the tips on the Louisiana Office of Financial Institution offers a more specific questionnaire of the questions an investor can ask. (www.ofi.la.gov/SecuritiesInvestorEd.htm)

A More Proactive Approach Is Needed

A more proactive approach will more likely lead an investor to discover suspicious or fraudulent activity. Fraud is more readily detected if investments are considered with eyes wide open, with an understanding of the deceitful tactics that will be employed, and with a multi-faceted investigative approach that non-lawyers and unsophisticated investors can conduct themselves.

Ponzi-Proof Your Investments hands control back to the investor and arms the investor with an understanding of how Ponzi schemes thrive and very specific questions to ask, along with an explanation of why those questions are important. While it is no guarantee that fraud can be avoided, conducting this level of investigation is the best front-line defense to avoid a fraudulent scam. The chapters include warnings about the promises that will be made and the secrecy and marketing tactics that will be used. They also include a breakdown of due diligence to be conducted on specific subjects such as the financial data, the business model, background checks, money management and the sales people. An entire chapter is dedicated to the important discussion – one usually avoided by investors – revolving around the investors’ good faith and intentions and knowledge when investing and when redeeming investments. Two of the appendices contain various website resources, including a state-by-state listing of websites recommended to conduct due diligence.

It is time for investors to stand up and take control. Fraudsters are certainly responsible for their frauds and will, we hope, ultimately be held liable for the losses that they cause. But investors are responsible for safeguarding their money and doing proper due diligence. With all of the legal hurdles that make it tough for victims to recoup their losses, the best defense is to avoid investing in a fraudulent scheme in the first place.

Kathy Bazoian Phelps has 22 years of experience as a lawyer in bankruptcy law and fraud litigation.  She is the author of Ponzi Proof Your Investments, co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes (LexisNexis® 2012), co-authored with Hon. Steven Rhodes, United States Bankruptcy Judge for the Eastern District of Michigan. To stay up-to-date with the latest Ponzi news, you can find Phelps’s blog here

The Lure Of Cash Gifting

PublicDomain-Damaged Dollar BillIn the world of Ponzi’s, Scams and Illegal Pyramid Schemes, they never die, they just reinvent themselves.  Cash Gifting is no different. Cash Gifting seems to recycle itself about every two years.

Chain Letters – Cash Gifting Once Upon a Time

Before the advent of the Internet, cash gifting was called the chain letter.  The way this program worked was you were to send a set amount of money to four or five people on your list you were provided, and then you made a new list with the top name removed, and the other names moved up one spot with your name at the bottom.  You instructed those you sent your mailing to do the same.  They in turn did the same and it goes on and on and on.

In each of the letters you received, there was always a statement that this had been checked out by an attorney and the U.S. Postal Office and both said it was perfectly legal.  In the chain mail letter, you were told you were sending your money to each person for a report they had and you were paying to receive this information.  Of course it was a ruse and usually consisted of only one sheet of paper with a few words on it, but that was supposedly making it all legal.  It was all hype as chain letters are illegal.

To participate in these chain letters was expensive as you were told you needed to mail to at least 100 people to get the right number of people who would participate and you would receive your untold thousands of dollars in your mailbox.  So you had the cost of postage, printing your new letter and copying them to send out to all 100.  To be really successful you were encouraged to send out 200-500 letters which would increase the amount of money you would receive into the tens of thousands of dollars.

From Chain Letters To Cash Gifting

Then came the Internet and the Chain Letter program entered into the 21st century.  It changed from chain letter to cash gifting.  By asking people to join your cash gifting program via Email, you were only dealing with people who were truly interested in joining your program.  They had to contact you for the plan details and be signed up under you.  No more huge up front expenses like in the chain letter, and your audience was the world.  While you still had the expense of sending the people on your list their money, at least you were not mailing blind as with the chain letter.

Many of the Cash Gifting programs today are designed to look like anything but a cash gifting program. Others claim you are joining a private club, and only club members can participate in their program. Others just say they are a cash gifting program.  No matter what the title, they all have one thing in common:  They all claim they are legal and the IRS has said so.    They reference Title 26 of the IRS Code that deals with estate cash gifting. Notice I said “estate” cash “gifts.”  So what does this mean?  The IRS says that a couple may “gift” up to $26,000 per year to anyone of their choosing to reduce their estate tax liability.  A single person can “gift” up to $13,000.

The Truth About Title 26 of the IRS Code

But wait a minute you just proved that cash gifting is legal since the IRS allows “gifts” under Title 26 of the Code up to $13,000 for a single person and up to $26,000 to a couple. Right? Actually I did not prove that cash gifting is legal, but I did prove that “gifts” were legal according to the IRS Title 26 of the Code.  You see cash gifting has nothing to do with estate “gifts.”  NOTHING.

What the Cash Gifters do not tell you is that under Title 26 of the Estate “Gifts” section, there is a sentence they omit from their spiel, and it is this:  “You must have ABSOLUTELY NO EXPECTATION OR RECEIVING ANYTHING IN RETURN FOR YOUR GIFT.” (emphasis mine).  That means you cannot receive something back for giving your “gift” or it is null and void and not a tax deduction. In a cash gifting program the only reason why you are giving is to receive a cash gift in return for your cash gift.  Let’s be real, otherwise you would not participate.  There are many more things the cash gifters will tell you trying to convince you their program is legal, but there is no way I can cover them all in this piece.  In my book: Robbing You With A Keyboard Instead Of A Gun – Cyber Crime How They Do It, I devote an entire chapter to Cash Gifting where I go into all the technical, statements, and the issues of Cash Gifting; and why it is illegal.

Are You Prepared To Go To Jail?

You need to know that people have gone to prison for running and participating in these illegal cash gifting pyramid schemes.   But all you really have to know is this:  Cash Gifting is illegal in all 50 states and the FTC (Federal Trade Commission), as well as in almost every country in the world.  So don’t take my word for it.  You can go to the FTC website (www.ftc.gov) and type in cash gifting and you can read what the FTC says about it, or for that matter do the same for your state Attorney General. If you have any questions you would like to ask me, just contact me at Eagle Research Associates here.

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How Romance Scams Steal Your Money While Crushing Your Heart

Knife Through The HeartFor me it started many years ago with a personal ad I took out.  A picture showed up that seemed way out of my league.  Out of curiosity I searched the web and found the photo  belonged to a Russian model.  Fast forward 15 years, a lady on Facebook asked “does anyone know this guy” on one of the many scam prevention pages that now populate the web.  Thanks to Google Images to be discussed later, searching a picture is now as simple as clicking a mouse.  I found the photo, another model.  I knew it was a scam, but of what kind?

I started writing about it, blogging as the kids call it.  Not really knowing what direction the endeavor would take, or just how pervasive the scam is.  An eye opener to be sure, even for a skeptic like me.  In this article I hope to explore the nature of the scam, the various stories you will hear, and how to avoid becoming a victim.

The Set-Up

The “set-up” is as easy as creating a profile on a dating site.  There are numerous free sites, but even the paid sites are full of fake profiles.  This extends to social networking sites like Facebook and Linkedin.  A crafty scammer will often set up multiple profiles on multiple pages, this gives the illusion they are a real person.  The bigger the scam, the more social proof you will likely find.  This may include web sites, attorneys, shipping companies, diplomats, law enforcement.  You name it, they can fake it.

A lot of people often ask, “how does one fall for something like this”?  Simple in my opinion, almost all of us now have online relationships of one form or another.  Chat rooms, social sites, sports blogs, industry groups, and the list builds.  Certainly in my case as someone who works from home, I have more people I connect with online than I do in person.  People looking for love are an easy target.  Victims are often older, religious, lonely, and are shocked to find someone online with so much in common.  But there is a hook, always a hook.

The Approach

A scammer will likely approach you male or female, I have fake profiles of both.  On the male profile, I could probably count on one hand the number of real approaches I have had.  On the female profile, a rich older widow I get multiples of messages over the former.  Both profiles are older, I have tried with younger pictures and never get the traffic.  Scammers know who to target, and who is likely to have money.  Just as they will know what to say to win your heart, after all, they are giving the same spiel to 50 other people at the same time.

Distance is almost always going to be between you.  The whole ruse relies on falling in love without ever meeting.  The easiest way to accomplish this is to pretend to be a deployed soldier, an oil rig worker, a diamond trader in Africa, or living in a refugee camp.  Use your imagination, but if they aren’t face to face, that is the first red flag.  They may claim to be coming to visit, complete with reservations, passports, requests from a senior officers, you name it. The visit will never happen, emergencies will pop up, and the only solution will be to wire cash.  More on that later.

Moving The Scam Forward

Scammers want to get you off the dating sites and onto chat, Skype, the phone, or email as quick as possible.  This is nothing more than time management on the scammers part.  A good scammer will have multiple chats going at any one time.

The basic set up is they steal webcam footage, say from a chat room and use those images to fool a victim that they are chatting with a live person.  There are commercial applications such as the one shown in the video below.

Editors Note: The author of this article showed me the CamDecoy System (which is no longer for sale) which was marketed towards private investigators, intelligence agencies, and people wanting to run a private cam show business. However, the following CamDecoy sales video shows how easy it can be for scammers to use the same technology to lure unsuspecting victims:

The easiest protection is to ask the person to do something unexpected.  If they are able to fulfill that request, most scammers will feign falling in love very quickly.  They will concoct stories such as being widowed, a single parent, very religious, fighting a terrible disease or traumatic life situation.  This is all done to elicit a caring response, and to build quick rapport.  Some thieves are very skilled and may take months to build up to a big score, sending flowers, gifts and being very attentive all the time.

The set up done, we have just connected with someone online who can’t meet in person, has one or more plights, and seems to be a match made in Heaven.

Spoiler alert, if you are asked to send goods like a laptop, I-phone, gift cards, money in any manner, for any reason, and/or to receive and reship goods, YOU ARE BEING SCAMMED. Period end of story. But but but, I know I have heard it all…

Scams are simple in their goal, come up with a reason for you to part with your money.  Most people aren’t stupid, so there has to be an incentive or a hook.  What might you hear from a scammer?  The most common version is what is called the 419 scam.  There is a sum of money that is in the scammers possession.  BUT a catch, they need YOUR help to move it from point A to point B.  Of course for your assistance you will be richly rewarded.  It may be someone pretending to be a soldier who has a Trunk Box full of gold they want to ship back home.  A diamond trader looking to ship precious gems to your doorstep.  An oil worker who needs a part to complete his contract, or a simple refugee with nowhere to turn. The stories are just on the other side of possible, and will always require cash be sent on your part.  After that, more cash, and after that, more cash.  The excuses and snags will never end.

The mule is a slight twist on the above, and may add some credibility to the scam.  Please send the money to my “sister”.  Or I am going to have a laptop sent to your house, can you send it to me at my base..  Scammers will use those blinded by love to traffic in stolen goods or to perpetrate their scam.  Again, the stories will always be plausible, but always a scam.

A slight twist on the above is the travel scam.  Your new online romance is dying to come see you.  They will produce all sorts of travel documents, all fake of course.  Or they may ask you to buy a passport, plane ticket, pay embassy fees, on in the case of soldiers all sorts of travel expenses.  It should be noted, this stuff is all fake.  With the fake soldiers, they will come up with all sorts of fees for leave.  NONE of this is real.  Or the other version is a sudden accident, theft, or incarceration.  Your love is on their way, but right in the middle of a transfer they are detained.  In one case a victim was called from a “hospital” saying their new love was in a serious accident.  Any and all solutions will involve wiring cash, and the requests will never end.

The last for this section is outright blackmail,  This one is pretty simple, the scammer gets you to take off your clothes and records the web chat.  Not that their can’t be other versions, this is the fastest.  Soon after your new love will contact you and threaten to share the photos with the world if you don’t pay up.

To recap The Set-Up and The Hook: You meet someone who seems like the perfect catch.  The relationship builds, but never in person.  They need your help to accomplish a task, the only solution is to send money or goods.  Rinse and repeat for as long as they can.  So NEVER SEND MONEY OR THINGS, and keep it PG until you know who is really on the other end of that connection.

Sussing out Scammers

The Internet has made it easier than ever to both scam, and to protect yourself from scams.  Demand photos, and if you want to be fussy current photos.  Then use Google image search , or TinEye to see if the images show up in other places on the web.  It really can be that simple.  Scammers will steal whole sets of photos that have been posted on social networking sites and use them as their own.  There are now plenty of sites that catalog these stolen photos, along with letters, emails, fake documents and in some cases pictures of the real scammer.  Side note, don’t let the scammer tell you that HE/SHE is the real person.  Oh and for the guys, there are quite a few profiles that have been stolen from models of all stripes.  If she is really hot, or the pictures look professional there you go.  I have received model quality photos from girls pretending to be in a refugee camp.

The Internet has made it easier than ever to both scam, and to protect yourself from scams. Demand photos, and if you want to be fussy current photos. Then use Google image search or the Tineye reverse image search engine to see if the images show up in other places on the web. It really can be that simple.

If the picture does not yield any hits, Google the email, Skype, phone number, and the text of their letters.  Google it all, and you will be surprised how often the email or text can be traced to multiple scams.  Pay attention to the writing, spelling errors, and phrases you would not expect a citizen to use.  I am John Jerry by name, notice two forenames.  I am from United State.  Expect the use of cute nicknames, dear, baby, my love.  If you are dealing with 50 lovers, hard to remember their names, so pet names are a must.

Be wary of free email services.  The only official email address for all branches of the US Military is (.MIL)  SGT-so&so@gmail.com is not a military address.  FBI@yahoo.com is not the FBI.  DiplomatUS@Ymail.com is not a diplomat.  Free email is fine when getting to know someone, but at some point a true suitor should provide you with their primary address.

Fake documents, fake shippers, and other general fakes.  Expect all order of fake documents to come your way as part of this con.  Expect to have contact with multiple people.  Google these as well.  Don’t assume just because it is the name of a real attorney or a real shipping company that you are dealing with anything but a scammer.  Often they will use a real name, but a free email address.  Phone numbers, locations, and voices can be spoofed. Checking an IP address on emails is a possible step in spotting a fraud.  Information on doing this is easy enough to find with Google.  Use your head as well, how often do diplomats show up in your life?  And most importantly is money involved?

After The Scam

Not only do Romance Scams take a financial toll, they take an emotional toll.  If you need it seek professional help.  For many the emotion is the same as losing any loved one.  I am unqualified in this area, only to say their are some support groups on line and others who were scammed now write blogs about it.  You are not alone, but impossible for me to say what is best.

DON”T contact the person in the photo.  They know, trust me they know and are every bit the victim of this scam that you are.  The have real families, real children and real lives away from the world the scammer created.  Let them be, PLEASE!

The Reload, YOUR SCAMMER HAS BEEN ARRESTED says CIA@freeemail.com .  No he hasn’t, this is part of the scam called the reload.  These scammers will claim they can get your money back, or punish your scammer.  It may even be the same person you were dealing with all along.  As with the original scam you will be asked to send money.

Report your scammer…

 

Further reading and tips..

Sweetheart Scammer or did this really hot person pick me above all others?

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PC Disaster – What to Do When All Else Fails

Almost anyone can be one click away from disaster. Take my husband, Steve. I call him the ‘virus magnet’.  He compulsively clicks on every link in every email. Maybe he is just naturally curious, although a few other descriptions usually come to mind.

This is the tale of how I rescued his PC and restored peace to our computer room.  It all started on a Sunday. I was happily reading the newspaper when he began complaining about his browser not working because something named the Babylon toolbar was intercepting every attempt to access any Web site. The Babylon toolbar is a really nasty Trojan and it is composed of multiple malware programs that open new TCP/IP inbound ports so additional malware can be down loaded. We uninstalled the Babylon toolbar, it but within a few minutes, it had reinstalled itself.

Steve’s PC Becomes Unusable

By the end of day, Steve’s computer was totally unusable. The virus had disabled the antivirus software, turned off the firewall, blocked us from using administrative tools, prevented us from accessing any security Web sites, disabled administrator mode and modified our router properties so we could not connect to the Internet. Rebooting the machine was equally ineffective. We could not get into Safe mode, nor run any applications. The computer seemed possessed by a daemon and continued popping up random messages and sounds.

Assume The Worst

If something similar to the above happens to you, you should assume that the hacker(s) have obtained your email IDs, passwords, and any sensitive personal information that is contained anywhere on your computer or has been displayed on your screen (e.g. while viewing your banking information or ordering with your credit card).  They have probably installed a key logger and have additionally captured all your files.

Maybe you have a system image you can use to restore your system. You could also try to revert to an earlier restore point, but this rarely succeeds because the virus has either corrupted or deleted all restore points. If you have no restore disks, it’s time for Plan B.

Protect Your Information Immediately

You should immediately take action to protect your information.  Cover the built in camera lens on your PC, if you have not already done so. Hackers can remotely turn on the camera and record everything you say. Call your bank and credit card companies. You might want to add a fraud alert or close your accounts and open new ones. Change all your passwords. You may need to call your IP provider and have them reset your modem. Make sure your modem has a password, and if it has one, change it.

If you do not have another PC in the house, research the problem using a computer at the library.  Often Microsoft forums or antivirus companies are the best places to look for answers.  If you are not ultimately able to rid your computer of all malware, you need to reinstall the operating system and make sure the Master Boot record has not been compromised.  Once malware has assumed administrative privileges, your computer can no longer be trusted. If other computers in the house become infected, the problem may be malware in your router.

It can be tedious to purge all malware.  Here is what worked for us:

The first step is usually to enter Safe mode and do a virus scan in that mode. Once a computer has been badly compromised, antivirus software gets disabled, so this rarely fixes the problem. Try to boot in Safe mode with networking. Most computers display a boot menu if you press the start button and tap F8. Sometimes this will not work with an infected computer. When that happens, you should try to crash the system and it will automatically display a boot menu. Disconnect the power cord after it boots, or perform a hard stop by holding down the start key.

Free Tools To Use To Fix The Problem

If you have Internet access, download the following tools from www.bleepingcomputer.com, Rkill, ComboFix, and the free trial version of Malwarebytes and run them in that order. I would not trust many of the files on this Web site but the three tools we used worked well.  These tools should initially be run in Safe mode. Do not down load these tools from any other Web site.

BleepingComputer.com warns people that, “Also, due to the power of this tool it is strongly advised that you do not attempt to act upon any of the information displayed by ComboFix without supervision from someone who has been properly trained. If you do so, it may lead to problems with the normal functionality of your computer.”  Fortunately, BleepingComputer.com also provides a list of forums here where there are authorized helpers who understand and can analyze ComboFix logs.

If you do not have Internet access, you need to use another computer to down load the tools and store them on a flash drive.  Rkill comes as an EXE, PIF, SCR or COM file. If your malware blocks an EXE, try one of the other types.  Rkill kills malicious processes, cleans you registry and kills Windows explorer so it will restart and enable the registry changes. It does not produce a report.  Rkill prevents the virus from blocking your attempts to clean the computer.

Run Rkill in Safe mode and reboot. Next run ComboFix in Safe mode and again reboot. ComboxFix scans for malware and viruses and incorrect registry entries. It will automatically remove anything that looks like a virus, which in some cases can be an antivirus program. It may complain that it cannot disable your antivirus software, but you can normally ignore this warning.  ComboFix will display a list of the actions it took. Reboot again into Safe Mode.

Run Malwarebytes in Safe mode. Malwarebytes will display a list of probable malware and allow you to select all or none of the files on the list for removal or quarantine. Reboot once more into normal Windows mode.

Some of the above tools can inadvertently remove necessary files and software. But if your computer is badly infected and you can’t restore your system there are few other good options.

I hope this never happens to you, and if it does I hope you had the foresight to back up your system or at least your important files.  I also hope your husband has a calm demeanor, unlike mine who becomes unglued when computers misbehave.

JMB

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