Some Warning Signs That an ‘Offer’ Is a Scam
The lure of a quick buck may seem irresistible--especially now, when money is tight and investment returns are becoming increasingly slim. And there are plenty of lures out there, from “investment programs” that offer to double your money in a short period of time to deals “guaranteed” to make you a millionaire or real estate baron within a few years.
But investors should be wary. In some cases, these pitches are mere exaggerations--money can be made, but it is not as easy or as quick as promoters make it sound. Other “offers” are nothing but financial scams put out by con artists who take your money and sometimes leave you on the hook for additional damages.
Notably, Southern California is considered the financial fraud headquarters of the world, so local folk might need to be doubly careful.
How do you spot and avoid a financial scam?
There is no simple answer since these schemes come in all shapes and sizes. But there are a few red flags that investors should watch for and a few simple precautions they can take to avoid getting shaved by a financial fraud.
The warning signs:
* Investment returns that are substantially higher than average:
Consider every percentage point increase above the going Treasury bond rate an increase in risk. When the rate rises to 5 or 10 percentage points above Treasury rates, you shouldn’t only be seeing red flags, you should be hearing sirens. The point in offering these exceptionally high rates is to appeal to investors’ greed and spur them to ignore normal examinations of the deal’s details and prospects.
* “It’s now or never” sales pitches:
The second tact con artists use is the “limited time offer.” Supposedly, the promoters are giving you this opportunity now but can’t guarantee they’ll be able to “hold your spot” for even a day, a week or an hour. Why? If you think about it for long, you might come to your senses. So they need your check or credit card number now.
* Solicitations from unregistered companies, particularly phone pitches:
Before you send in your money, you should know a lot about the company you are investing with. One good way to do that is to check it out with any number of federal or state agencies that register or license companies, including the Department of Corporations, the Department of Insurance, the Secretary of State or the Securities and Exchange Commission. If you can’t find the company when inquiring with these agencies, how easily do you think it will be to find your money?
* Offshore companies:
Sure, they’ll tell you they’re headquartered in the Bahamas because the tax rates are more favorable. The disclosure requirements are also more favorable if you are a con artist. It is nearly impossible for most investors to get financial information from an independent and reliable source when dealing with offshore companies. And forget the government agencies that look out for your well-being. There are some legitimate companies that are headquartered offshore, but there are a whole lot of cons run with Bahamas and Netherlands Antilles addresses too.
* Beware the glib response:
You know the old adage “when it seems to good to be true, it probably is.” So you ask: “Why, if this is such a sure-fire deal, are you offering it to me? Why won’t the banks finance it?”
The con man answers: “The banks don’t understand me. This is a very complex deal.”
This is one of the great lies of investing. Generally, the cold fact is the banks understand only too well. That’s their job, and many are good at it. They wouldn’t touch it--and neither should you.
The precautions:
* Don’t invest with someone who just calls over the phone:
Before you send your money to anyone, you should have a prospectus--which gives you a detailed analysis of the deal and its risks--in your hands. Never send a deposit or give out a valid credit card number without it.
* Check out the company and its officers:
You should know who you are investing with, and you should know their history. A lot of investment mistakes could have been avoided if consumers just took the time to check out the company with government agencies and the court system. One local con man, who has perpetrated real estate, oil and gas and other scams, has been sued more than 50 times--in Los Angeles alone--by investors who said he misrepresented deals and basically stole their money. That’s not unusual. Many scam artists go from one con to the next, and they leave a legal trail behind them.
* Don’t let someone else do your reading for you:
If it’s your money, you are taking the risks. So you shouldn’t assume that your best friend, “who is very smart” and who is also an investor, has done all the investigating necessary to keep your funds safe. Do the reading yourself, and talk to your accountant, financial planner or attorney when there is something you don’t understand. You wouldn’t walk blindfolded into a car dealership and say, “Give me a good one for $20,000,” so don’t do it with your investments.
