Various fraud schemes that people fall for: how to protect yourself against the most common: phone scams, bubble investments, Ponzi schemes, Pyramid schemes. Never get pertinent documents, and do not discuss the investments with a lawyer or accountant. Some safeguards to avoid falling for scams.
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Has anyone wised up to these frauds?
The American economy in the last two years took a very bad hit with the subprime mortgage crisis, the collapse of certain well known and very large financial institutions, and yet people still fall for "get rich quick" schemes that are simply old con games dressed up in new technology: the phone scam where a caller promises you a great return, the bubble investment which depends on more and more people buying at higher and higher prices until the burst, the Ponzi scheme where people are seduced into believing that a "friend" or "fellow countryman" will get them large returns on their investments, over and above the market, until there is no money, and finally pyramid schemes where there is a "business opportunity" to make lots of money by recruiting your personal sales force, where you pay for the product, and the tools, and make zilch.
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Phone Scam
You get a call out of the blue from someone you never knew before, they represent a "charity", or an "investment opportunity," "you are a lost heir," "your identity has been stolen and you need to do a credit repair." This always consists of someone wanting your money, your personal financial information and you must make a decision right away. The ONLY document you will get from these callers is a bill. Hang up, it is almost never true unless it is a charity you know or a person in a financial institution where you actually have an account. Otherwise it is a telemarketer working off a list, in which you are a name on a piece of paper. Period.
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The Bubble Scam
Years ago the first bubble scam was Dutch tulips. Holland had learned to get color shades from the Turkish flower and this rainbow of hues were very popular with many gardeners. People were willing to pay high prices for them, and speculation grew wild. Soon people were investing in tulips, and as the money came in, more and more people invested with the dream that the price would keep getting higher. Soon enough the market collapsed, the price went down, and investors were holding position papers on tulips that were worthless. Every bubble investment since then has been the same: speculation that the price will never go down: it often happens with precious metals like gold. (You can't trust the government to keep money stable). The most recent one was the subprime mortgage bubble based on the assumption that home prices could only go up. That market collapsed and brought down many investors including large financial institutions which had lost all common sense.
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The Ponzi Scam
With the arrest of Bernie Madoff, more people are aware of this scam. The basic ploy is to convince people your investor has secret information, he can "beat" the market and he can "guarantee" a high return. The "wise" investor also convinces you on the basis of family, friendship, and/or "being from the same country or heritage." The investor uses people's money to finance a lavish lifestyle to look as if he is really making large sums of money from his "wise" investments. Initial investors are paid off with new investors money, so at first the Ponzi investment looks great. Madoff did well until most of his major clients had their other bubble investments burst and they demanded their money back plus the dividends which had magically appeared on every statement on their accounts. Madoff admitted it was a huge Ponzi scheme and he did not have the funds to pay back the investments. Federal prosecutors may be able to return pennies for every dollar invested --from his assets.
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The Pyramid Scam
I personally remember being recruited for a home meeting about a "business opportunity." When my wife and I showed up at the meeting it was a recruitment pitch for Amway (which is now owned by Quixtar). I found it annoying that the recruitment call never mentioned that it was for selling soap products. I find it dishonest to be told I will have a career and a business opportunity which boils down to I will be selling soap and trying to get other people to sell soap. Anyone who knows math knows that if your income depends on recruiting salespeople who then have to recruit salespeople, who then have to--you quickly run out of people. There is a class action lawsuit in federal court in Northern District California Pokorny v. Quixtar which is suing Amway for being a fraud. According to Quixtar's own financial statement, 99% of its recruits never make money. Some business opportunity!
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