How to Spot a Fraud or Scam

scamFraud is prevalent on the Internet.  Yet, it is a fairly benign nuisance for savvy Internet users who follow these basic rules for detecting scams:

1. Urgent Requirement for Paying a Fee or Payment.   If the deal requires an advance fee or some kind of urgent response or cash payment. If you feel any pressure to make a decision, don’t do it. Responsible financial advisors do not rush prospective clients into hasty, and regrettable, decisions.  They should welcome your scrutiny.   In fact, use the Internet to do a search for any transactions in which they’ve been involved and see what others say.

2.  Fee for Future Return.  If the deal involves a high upfront fee in return for the promise of making more money at some unspecified date in the future, pass on it.  You should pretty much never pay for a service that isn’t completed.

3.  Complexity.  If you can’t explain the scheme to your 13-year old child, cousin or someone not savvy about business then you shouldn’t be doing it. Scammers often dazzle or intimidate their targets with their superior knowledge of finance or with complex mathematical explanations. But when it comes to financial deals, if you don’t understand it, don’t do it because you can never know whether you’ll get what you want if you don’t understand how you’ll get it.

4.  Affinity Deals.  One of the most common scams involve getting you to use your personal network of contacts to find new victims.   Be very wary about deals that rely upon you to find new customers.   Conversely, never invest money in a scheme that requires that you not tell  family members or friends about the offer.  Any scheme that demands secrecy is one that doesn’t want to be discovered.

5.  Excessive Personal Information.  Any offer that requires you to disclose your own personal information — bank account numbers, credit cards, drivers license or social security number — should be avoided.  Unless you are taking out a loan, there is no legal basis for anyone to require this information.  Scammers often ask for bank account or debit card information so that they can “make payments to you.”   Insist that they pay you in a way that you, not they, make payments into your bank accounts.

6.  Free Lunch.  Trust us….there is no such thing as a free lunch.  If they are offering something for “free”, your scam antenna should go up.  Just as you wouldn’t like someone sticking you with a restaurant bill, you should rarely — if ever — be tempted to accept someone else’s offer to pick up your lunch tab with no strings attached.   This is especially true about timeshare presentations and other vacation-related offerings.  A free trip sounds nice until you realize that these companies are designed to take your money, not to give you money.

7.  Guarantees/No-Risk.  Any offer which uses the word “guarantee” or “no-risk” is questionable.  The only deals that is guaranteed are Treasury Bonds, and even there, some governments default on bonds.  There’s risk in almost all transactions because otherwise, your return would be close to the 1% or so that you’ll get from the bank for your savings account.   Scammers love to use those two words, so when you see or hear those questionable words in an offer, be careful.

In most all cases, deals that are too good to be true are usually too good to be true.   Any time you invest in any “scheme”, work through in your mind how you will cope if you lose all of that money.   If a loss of that kind would seriously impact your life, you should think twice about doing it.   At the least, you should get second or third opinions from friends, family or independent advisers who have knowledge about the deal.

Finally, while the Internet is a haven for scammers, it is also their worst nightmare because you can use the Internet to investigate and research just about any deal that is offered to you.  Within a few minutes, you can discover much about someone offering you a “deal”.  And if you can’t find anything at all about them, that’s a warning sign as well.  If they’ve been successful, there will be people on the Internet singing their praises.  But then, you already know about the power of the Internet to protect you……….you are reading this article.  Congratulations!

If you aren’t sure whether any offer that you are mulling over is a scam or not, feel free to ask us.  Just use this link to contact us and we’ll check it out for you.

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