Fraud and Investing


For nearly ten years, I have been involved in one degree of fraud investigation or another.  The investigation work I’ve done is high volume investigation work that didn’t allow for intense scrutiny of the details involved, but I’ve come away with a few principles that everyone should know.

1) If it seems to good to be true, it probably is.  This is the obvious one that everyone knows, but people still fall for it on a daily basis.  The tag lines these people usually use are ‘little to no work involved,’  ‘substantial gains,’ and  ‘little to no loss.’  I usually tell my friends that if they want to know some of the best short term marketing experts go to the fraudsters.  Some of them are quite good.  They have tried and true marketing gimmicks that prey on human weaknesses and frailties.  As you’ll note in my blog below, they know how to adapt, and they know that the penalties that they will suffer if caught are usually in direct proportions to their gains.  Still, it’s your money and it’s your sense of invasion, so don’t fall for their ‘a sucker is born every minute’ attempts to take you. 

2) Who contacted who–If an individual contacts you, then it’s probably not the great deal that they have proposed.  Some of these guys may not be fraudsters.  They may think that their product is the greatest thing since sliced bread, but that doesn’t mean that this is a great investment.  The question that you must ask yourself in any venture of this sort is why are they contacting you?  If their deal is so incredible they shouldn’t have to recruit members by contacting them over the phone or by email.  You should be the one contacting them, because your trusted Uncle Harry turned you onto the investment. 

Most of us believe that it is unfair that we live on the outercrust of the ‘great deal.’  We aren’t privy to the insider information that brokers give their clients, and that high end friends give their high end friends.  Most of us want a piece of the action that has been out of our reach for so long due to our station in life.  After everything we’ve been through, we deserve this much needed break in life.  We see the ‘rich get richer’ transactions occurring all the time in the movies, and we fall prey to the belief that this guy in this email is finally giving us our chance at that piece of the pie.  Many fraudsters know this mentality well.  It’s probably the reason they initiated this scam in the first place. 

3) Don’t click on links in emails.  I don’t know if I invented this analogy, or if I read it somewhere, but most of the time a fraudster is like a vampire, in that they cannot get into your account unless you invite them in.  This is a big one.  I used to investigate these cases all the time.  You receive an email from your trusted XYZ coporation, and they have just noticed that your information has been changed, and they instruct you to please update your information.  Within the body of the email, they provide you a link to get to your account.  You do this so often, by habit, with your XYZ corportation that you do it again.  This email will provide near perfect resolution, body and background to resemble that which the XYZ corporation sends you on a weekly basis.  they ask you to verify your information in the body of that email.  Once you click send on that email, that has all of your information, you’ve invited that vampire in.  To avoid such a disaster, I have begun to habitually type the URL of my www.XYZ.com corporation’s URL in my browser.  Even when it is a legitimate email from the corporation, I type it in.  It’s been a habit that has thwarted many of these convincing emails.  I’ve been in the business for quite some time, and I still far for it.  My heart starts pounding with exaggerated rapidity, and my temperature rises, but I type the URL in my browser, and I find it’s another fraudster just trying to get my information.

I’ve seen instances where this email is signed by the CEO of that business, in the manner all official correspondence from the company is signed.  It even has my sign in name for that corporation.  What?   It has to be legitimate.  How would a fraudster get ahold of my sign in name?  Remember, if the fraudster has your email address, they will usually take the time to include your name or your sign on name.  If necessary, you may want to contact the corporation to see if what is stated in this email is, in fact, the case.  The fraudster is counting on your paranoia to launch his coup.  Most people in a state of paranoia, click on the link out of frightened haste.  They want to get to the bottom of the matter as quickly as possible, and this leads them to make frantic mistakes.  As with all insects of this variety, the fraudster evolves.  They used to instruct you to click on the link, but as this tactic became better known, they stopped doing that.  In the end, a fraudster usually only needs a 10% rate of accomplishement to achieve success.  One could also say that due to the fact that they didn’t spend any money on this particular venture, one person out of thousand can be qualified a success. 

4) Check your information constantly–The best thing to do to thwart a fraudster is to catch him while his tracks are still fresh.  If you notice some sort of abberation in your activity, contact your insitution immediately.  Some of the times, the institution has safe guard put into place to get you your money back if you contact them within a given timeframe.  They also have an easier time tracking down the suspect when you contact them immediately. 

I heard a recent case where an investor plunked down 100,000 on a venture that was guaranteed to accrue 140% on investment.  The alleged fraudster claimed that: “It is a gift from God if you get in!”  The alleged fraudster was also asked, by an undercover agent, if she could lose her money.  The alleged fraudster told her: “Oh, no, no, no, that never happens.”  All investors are excited to bring more money on board with their investment, or they would not have entered into it in the first place.  A responsible investor will inform you that all investments carry with them a risk worth considering before entering into them.  A fraudster may fear that they will lose you with any note of negativity. 

5) Do independent research–Ask the person providing the opportunity of a lifetime if he has material on the net or if he has some physical readouts on his company or this investment.  This may be the one piece of advice that you can disregard.  The reason for this is that if an investor is offering a high profile investment they usually back it up with a website that offers glowing customer approval and statistics that are usually confusing to novices.  Creating a website is very inexpensive these days, and with all the tools out there it’s usually pretty simple and not very time-consuming to create one.  Having said that, if you’re dealing with a low-profile, high volume ‘agent of opportunity’ they want to get you money in quickly, and they usually won’t bother with intricacies such as a website  or physical documentation.  Again, the high volume fraudster is counting on a very low percentage success rate, so they usually won’t bother with what they consider the fluff.

6) It’s all about getting your money into their investment.  Another thing I have become suspicious of is an agent of this knowing all the answers.  Do they list off gobbedly gook?  Do they talk in circles with ‘in the know’ terminology designed to make you feel uneducated?  Are you allowing them to talk to you this way, and you’re embarrassed that you don’t know enough about their investment to question them?  As Warren Buffet says: “Invest in what you know.”  Traditional investing is usually pretty damn boring and plodding.  It usually involves knowledge, patience, and timing.  Traditional investing usually involves a return of 3-4%, and it usually involves the lack of sex appeal that the 140% returns promise, but the probability of success in these ventures is usually in inverse proportion to the probability of return.   

7) Know that you are not smart–You may be one of the most brilliant kids to come out of MIT, or you may have the street smarts of a Leonardo Dicaprio character, but you are an idiot when it comes to this game.  This is their game.  If you’re not an idiot, and few of us would admit we are, then at least try to maintain the mindset.  How many people truly walk out of setting with a used carsalesman with the best deal possible?  How many people have enough knowledge and confidence in a given matter that they can out talk a salesman?  How many people walk onto the Las Vegas strip with the idea that their method will be the one to defeat Vegas?  Remember, this is the platform that the fraudsters have built.  The probabilities of you winning are as low as those in Vegas, and you probably won’t have as much fun in the process.  You are entering the lion’s den on this one, and I don’t care how many degrees you have achieved, or how many arguments you won with your Aunt Mary Lou these people know their game better than you.

8) Hang up–As former telemarketer who in one of my ventures sold an immoral product (accidentally as a naive kid), I know that the best thing you can do is hang up on us.  We have been extensively trained in the back and forth.  If she says this, turn to page 14.  If she says that, turn to page 12.   Those of us with extensive knowledge of the product didn’t even have to turn the page.  We knew the product ten times better than the customer, and we hooked a lot of the know-it-alls with extensive street knowledge.  We heard all the witty comebacks, and the practiced rhetorical flourishes.  In the end, it doesn’t take political acumen, street smarts, or an MIT degree to win this game, it takes you hanging up or deleting that email, and you’ve won.  It does take humility, however.  It does take the ability to admit that you are not as smart or savy as this guy on the other end, but if you can achieve that degree of humility you’ll be all the richer for it.

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