A Guide to Consumer Scams
by Bob Smith

INTRODUCTION

There are numerous scams and tricks that are commonly used to bilk people out of their money. This article deals with consumer targeted scams. The scammers may use the telephone or mail to get you to buy a fake product, invest in a non-viable company, or target you for bank account or credit card fraud.

A frightening fact about scams is that some of them are perpetrated by legitimate businesses. Often the scam is not actually technically illegal, and you may have little recourse to retrieve your lost time and money. In many cases, the swindlers will have already spent your money by the time you realize you have been ripped off.

According to Ira Lipman, an expert on crime and author of "How to Protect Yourself from Crime," the chances of successfully recovering any of your lost money are almost nil when dealing with most common scams. You have a much better chance of protecting yourself by taking preemptive steps against being a victim. This report describes some typical scams and how to avoid them, as well as giving some basic instructions for protecting yourself from fraud.

CON ARTISTS

If it hasn't happened already, prepare yourself to pick up the phone one day and hear the following type of pitch:

"Good morning, Mr. Johnson. This is Jason Brown of Global US Internet Radio, Incorporated. Your name came up on a list of qualified investors who can spot and act on a great opportunity when they see one. We are currently creating a new company to take advantage of this new trend in Internet radio communications. I don't have to tell you how hot this new trend is and how much money companies like Microsoft, Intel, and Digital have made overnight with very little initial investment in similar fields.

"Mr. Johnson, we are inviting special customers like you to participate as partners and shareholders in this new venture before the public offering is completed the day after tomorrow. "I enjoy dealing with astute, seasoned investors like yourself. Let me put you down for just ten thousand shares, at a modest commitment of just $1,000. I really want you to have a piece of this action, not only for the sake of making some money on this sensational deal, but as the first step to creating a long-term, rewarding relationship with you.

"Let me send a federal express carrier to pick up that check from you so you don't miss out on this incredible opportunity. You don't want to take the chance of missing out on this one!"

Pitches like this one come from fast talking telephone solicitors in a cheap office crammed with telephones, called a "boiler room." A low-paid individual called an "opener" makes the first contact. Once you express interest in the pitch, you will be turned over to a more accomplished high-pressure sales artist known as a "loader." The loader will often add additional "confidential" embellishments that make the idea seem plausible and very exciting.

Investors discover, usually too late, that the entire investment is a hoax. This type of scam is called the "New Venture" scam. Investment fraud bilks Americans out of literally hundreds of millions of dollars a year.

These scams are perpetrated by sophisticated, experienced, and professional-sounding operators with temporary addresses located at prestigious Wall Street addresses, or the equivalent at other financial centers. This is particularly distressing because legitimate brokers also operate by phone and have similar addresses.

INVESTMENT FRAUD

A common type of investment fraud is the "shell game." Essentially, criminals acquire a new company that is close to bankruptcy, but who have registered with the SEC to have their stock publicly traded. They reduce the equity of the shareholders of the original corporations, often through a reverse stock split that allows them to issue new shares.

Using appropriate telephone pitches, the fraud artists are able to increase the investor base and raise the price of the stock through trading. When the prices hit a high point, the stock held by the fraudulent backers is liquidated, and the price plummets, leaving investors with a huge loss and a worthless stock. Most often the con artists abscond with a fortune, spend all the money, or wind up in prison.

Another typical investment fraud deals with fast-buck commodity futures. In futures, relatively few investment dollars can control sizable sums. By their very nature, futures exercise an almost irresistible appeal to the greedy, get-rich-quick investor. What the average investor doesn't know is that futures trading is a real sucker's bet, with the likelihood of turning a profit well below 10 percent.

Land fraud is perhaps the oldest and most enduring form of investment fraud in America. The concept is very simple: The swindlers purchase rights to a piece of junk property at a rock-bottom price. They convince investors that there is some desirable resource attached to the property, such as coal, oil, uranium, etc. In land schemes, a "shill" is often used. A shill is an "investor just like you" who is really a paid accomplice of the fraud artists. The shill is introduced as a satisfied customer who says something along the lines of "This is a really reputable company. They doubled my money, and they have been totally honest with me since day one." Of course, the "resource" is just a scam. The oil or mineral rights are useless and the organizers pocket the money.

Possibly the most effective investment scam is the "Ponzi" scheme. Essentially, the operation requires investors to place their funds in the care of the operators. Within a few months, or even days, the investors get back "interest" on their money. The interest checks keep coming. They get excited and invest more money! They tell their friends, who, in turn, invest. Their friends make money, too. Then, one day, the checks stop coming and the investors never see their initial capital again.

What the investors didn't know is that the "interest" they were getting was really just a portion of their original investment money, or someone else's. Some of the first investors may even make interest back than their initial principal. The problem is that, eventually, the operators take most of the money and leave town, or they run out of cash after they stop getting new investors.

Some Ponzi schemes actually start out as valid business operations! They can even be making part of the "interest" through legitimate investments or business. It can be very difficult to spot a Ponzi scheme until it's too late.

Here are some tips for avoiding investment scams:

If an investment sounds like an incredible deal, it is probably a scam. Do some research before making any commitment.

Never make any commitment to an unknown broker or brokerage who calls you on the phone - it is likely to be a boiler room operation.

When opening any investment account, request evidence that the broker and the firm are licensed. Obtain the firm's recent financial statements, and be cautious of doing business with those that have net capitalization under $1 million.

Be skeptical of substantial stock discounts and "urgent" deals that require you to invest money "immediately".

OPPORTUNITY SCAMS

Opportunity scams are frequently perpetrated against those with little money to lose. Typically, these scams promise you an incredible product at a great price, a fantastic "work at home" opportunity, or a "free prize." They are all characterized by the fact that you have to pay money to someone to get what you are promised. Frequently, you are promised information, or an informational pamphlet. Here is a classic example that you've probably seen in your e-mailbox:

CHAIN LETTERS

A chain letter is a "get rich quick" scheme that promises that your mailbox will soon be stuffed full of cash if you decide to participate. You're told you can make thousands of dollars every month if you follow the detailed instructions in the letter.

A typical chain letter includes names and addresses of several individuals. You are instructed to send a certain amount of money (usually $5) to the person at the top of the list, and then eliminate that name and add yours to the bottom. You are then instructed to mail copies of the letter to a few more individuals who will hopefully repeat the entire process. The letter promises that if they follow the same procedure, your name will gradually move to the top of the list and you'll receive money -- lots of it.

There's at least one problem with chain letters. They're illegal if they request money or other items of value and promise a substantial return to the participants. Chain letters are a form of gambling, and sending them through the mail violates Title 18, United States Code, Section 1302, the Postal Lottery Statute. (Chain letters that ask for items of minor value, like picture postcards or recipes, may be mailed, since such items are not things of value within the meaning of the law.)

Recently, high-tech chain letters have begun surfacing. They may be disseminated over the Internet, or may require the copying and mailing of computer disks rather than paper. Regardless of what technology is used to advance the scheme, if the mail is used at any step along the way, it is still illegal. The main thing to remember is that a chain letter is simply a bad investment. You certainly won't get rich. In fact, you will receive little, if any, money at all.

One scam witnessed by the author of this article was a very clever chain letter that contained a reference to a publishing company that would reproduce the chain letter for you so you could send it out to thousands of people, supposedly at a great price and on recycled paper. A little background check revealed that the originator of the letter owned the "publishing company"! In addition, their rates for reproducing the letter were much more expensive than competitive rates at local print shops. Just imagine all the money this con artist made on people who were gullible enough to pay him to reproduce his chain letter!

Chain letters don't work because the promise that all participants in a chain letter will be winners is mathematically impossible. Also, many people participate but do not send money to the person at the top of the list. Some others create a chain letter that lists their name numerous times--in various forms with different addressee. So, in reality, all the money in a chain is going to one person. Do not be fooled if the chain letter is used to sell inexpensive reports on credit, mail order sales, mailing lists, or other topics. The primary purpose is to take your money, not to sell information.

"Selling" a product does not ensure legality. Be doubly suspicious if there's a claim that the U.S. Postal Service or U.S. Postal Inspection Service has declared the letter legal. This is said only to mislead you. Neither the Postal Service nor Postal Inspectors give prior approval to any chain letter.

Participating in a chain letter is a losing proposition.

Turn over any chain letter you receive that asks for money or other items of value to your local postmaster or nearest Postal Inspector. Write on the envelope of the letter or in a separate transmittal letter, "I received this in the mail and believe it may be illegal."

SCHOLARSHIP SCAMS

- "This scholarship is guaranteed or your money back."

No one can guarantee that they'll get you a grant or scholarship. Refund Guarantees often have conditions or strings attached. Get refund policies in writing - before you pay.

- "You can't get this information anywhere else."

There are many free lists of scholarships available. Check with your school or library before you decide to pay someone to do the work for you.

- "May I have your credit card or bank account number to hold this scholarship?"

Don't give out your credit card or bank account number on the phone without getting information in writing first. It may be a set-up for an unauthorized withdrawal from your account.

* "We'll do all the work."

Don't be fooled. There's no way around it. You must apply for scholarships or grants yourself.

* "The scholarship will cost some money."

Don't pay anyone who claims to be "holding" a scholarship or grant for you. Free money shouldn't cost a thing.

* "You've been selected" by a 'national foundation' to receive a scholarship, or "You're a finalist" in a contest that you never entered.

Before you send money to apply for a scholarship, check it out. Make sure the foundation or program is legitimate.

FEDERAL JOB FRAUD

You don't have to pay for information about job vacancies with the U.S. Government, but scam artists who sell information about federal job opportunities victimize many Americans. These scam artists advertise in the classified sections of newspapers and offer - for a fee - to help job seekers find and apply for federal jobs. Some companies try to confuse consumers by using names like the "U.S. Agency for Career Advancement," or the "Postal Employment Service," which sound like federal agencies.

Scam artists may lie about the existence of federal job openings in your area. For example, the Postal Service has few vacancies for permanent full-time jobs. Postal Service hiring takes place through 85 district offices at the local level and when positions are announced, they often are advertised a very short time. Your local post office is the best source of information about current openings.

Information about U.S. government jobs is available free. Federal agencies and the U.S. Postal Service never charge application fees, sell study guides for

job tests, or guarantee that an applicant will be hired. If positions require a competitive examination - and many do not - hiring agencies typically offer free sample questions to consumers who signup for the exam.

The Federal Trade Commission and the U.S. Office of Personnel Management say certain techniques usually can tip off consumers to job scams:

* Classified ads or oral sales pitches that imply an affiliation with the federal government, guarantee high test scores or jobs, or state that "no experience is necessary."

* Ads that offer information about "hidden" or unadvertised federal jobs.

* Ads that refer to a toll-free phone number. Often in these cases, an operator encourages you to buy a "valuable" booklet containing job listings, practice test questions, and tips for entrance exams.

* Toll-free numbers that direct you to other pay-per-call numbers for more information. Under federal law, any solicitations for pay-per-call numbers must contain full disclosures about cost. Also, the solicitation must make clear if there is an affiliation with the federal government. You must have a chance to hang up before you incur any charges.

OTHER ILLEGAL ACTIVITIES

According to the FTC, the following activities are illegal. You should be alert to these signs of scams.

It is illegal...

• For a telemarketer to call after you have asked not to be called.
• For a telemarketer to call you after 9 p.m., and before 8 a.m.
• For telemarketers to neglect to tell you promptly, at the beginning of the call, the company name and what they are selling. If it's a prize promotion, the caller must tell you that no purchase or payment is necessary to win.
• For a telemarketer to misrepresent anything about the offer.
• For a telemarketer to ask you for payment before telling you the total cost of goods, whether a sale is final, the odds of winning a prize, and any restrictions on getting the prize.
• For a telemarketer to withdraw money from your checking account without getting your verifiable permission in advance. The new regulation gives you the right to request a written form outlining all conditions of such withdrawals before you agree. NEVER give verbal authorization or disclose your checking account number over the phone.

THE COOLING OFF RULE

If you buy something at a store and later change your mind, you may not be able to return the merchandise. But if you buy an item in your home or at a location that is not the seller's permanent place of business, you may have the option. The Federal Trade Commission's (FTC) Cooling-Off Rule gives you three days to cancel purchases of $25 or more. Under the Cooling-Off Rule, your right to cancel for a full refund extends until midnight of the third business day after the sale.

The Cooling-Off Rule applies to sales at the buyers home, workplace or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fairgrounds, and restaurants. The Cooling-Off Rule applies even when you invite the salesperson to make a presentation in your home.

Under the Cooling-Off Rule, the salesperson must tell you about your cancellation rights at the time of sale. The salesperson also must give you two copies of a cancellation form (one to keep and one to send) and a copy of your contract or receipt. The contract or receipt should be dated, show the name and address of the seller, and explain your right to cancel. The contract or receipt must be in the same language that's used in the sales presentation.

Some types of sales cannot be canceled even if they do occur in locations normally covered by the Rule. The Cooling-Off Rule does not cover sales that are:

• Under $25.
• For goods or services not primarily intended for personal, family or household purposes. (The Rule applies to courses of instruction or training.)
• Made entirely by mail or telephone.
• The result of prior negotiations at the sellers permanent business location where the goods are sold regularly.
• Needed to meet an emergency. Suppose insects suddenly appear in your home, and you waive your right to cancel.
• Made as part of your request for the seller to do repairs or maintenance on your personal property (purchases made beyond the maintenance or repair request are covered).

Also exempt from the Cooling-Off Rule are sales that involve:

• Real estate, insurance, or securities.
• Automobiles, vans, trucks, or other motor vehicles sold at temporary locations, provided the seller has at least one permanent place of business.
• Arts or crafts sold at fairs or locations such as shopping malls, civic centers, and schools.

How to Cancel

To cancel a sale, sign and date one copy of the cancellation form. Mail it to the address given for cancellation, making sure the envelope is post-marked before midnight of the third business day after the contract date. (Saturday is considered a business day; Sundays and federal holidays are not.) Because proof of the mailing date and proof of receipt are important, consider sending the cancellation form by certified mail so you can get a return receipt. Or, consider hand delivering the cancellation notice before midnight of the third business day. Keep the other copy of the cancellation form for your records.

If the seller fails to provide cancellation forms, you can write your own cancellation letter. It must be post-marked within three business days of the sale.

You do not have to give a reason for canceling your purchase. You have a right to change your mind.

If You Cancel

If you cancel your purchase, the seller has 10 days to:

• Cancel and return any promissory note or other negotiable instrument you signed.
• Refund all your money and tell you whether any product you still have will be picked up; and return any trade-in.

Within 20 days, the seller must either pick up the items left with you, or reimburse you for mailing expenses, if you agree to send back the items.

If you received any goods from the seller, you must make them available to the seller in as good condition as when you received them. If you do not make the items available to the seller -- or if you agree to return the items but fail to -- you remain obligated under the contract.

Problems

If you have a complaint about sales practices that involve the Cooling-Off Rule, write: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. The Rules complete name and citation are: Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations; 16 CFR Part 429.

You also may wish to contact a consumer protection office in your city, county, or state. Some state laws give you even more rights than the FTC's Cooling-Off

Rule and some local consumer offices can help you resolve your complaint.

In addition, if you paid for your purchase with a credit card and a billing dispute arises about the purchase (for example, if the merchandise shipped was not what you ordered), you can notify the credit card company that you want to dispute the purchase. Under the Fair Credit Billing Act, the credit card company must acknowledge your dispute in writing and conduct a reasonable investigation of your problem. You may withhold payment of the amount in dispute, until it is resolved. (You are still required to pay any part of your bill that is not in dispute.) To protect your rights under the Fair Credit Billing Act, you must send a written notice about the problem to the credit card company at the address for billing disputes specified on your billing statement within 60 days after the first bill containing the disputed amount is mailed to you.

If the 60-day period has expired or if your dispute concerns the quality of the merchandise purchased, you may have other rights under the Act. If you have questions about the Fair Credit Billing Act, write for the free brochure "Fair Credit Billing". Write: Public Reference, Federal Trade Commission, Washington, D.C. 20580.

HOW TO AVOID FRAUD

• Know the company with which you plan to do business.
• A reputable company will be pleased to send you information. A fraudulent promotion often requires an immediate response.
• Never reveal account numbers, partial account numbers, or any other personal identification to strangers, especially over the phone.
• Never send cash by private carrier.
• Required overnight delivery of checks or money orders is an indication of fraud. Federal agents investigate frauds that use the mail.
• Never pay up-front fees for services that normally operate on a commission basis or charge interest. Employment agencies, real estate agents, and travel agents generally operate on a commission basis. Lenders charge interest rates.
• When anyone tells you that you have won a prize, hold on to your money. Any time you are told you have won a prize and have to pay money, refuse the prize.

Source: Bob Smith and http://www.karaokeinfo.com/