Before emptying your pocket, avoid these scams
Fri May 15, 2009, 7:07 am | Leave Comment
The current financial crisis – more like a financial disaster – has not only battered the portfolios of many investors, it has also placed a spotlight on investment fraud. In turbulent economic times, ongoing schemes tend to unravel as wary investors begin demanding their cash. And the opportunity for new fraud can rise, as fraudsters look for any hook to exploit those who hope to recover their losses.
Read my post Who is at fault – Madoff, SEC or a Third?. The common thread that binds these different types of fraud is the psychology behind the pitch. As the saying goes “If it sounds too good to be true, it probably is” – which is great advice, but the trick is figuring out when “good” becomes “too good.” There’s no bright line. Investment fraudsters make their living by making sure the deals they tout appear both good and true.
The research I did for this post is mind boggling. The fraudsters would ask you questions about your health, family, political views, hobbies or prior employers. Once they know which buttons to push, they will shower you with a flurry of influence tactics, which can leave even the savviest person in a haze. Just beware and be warned.
Some of the most common tactics include:
- Dangling the prospect of wealth enticing you with something you want but can’t have, something like “These oil wells are guaranteed to produce $6,200 a month in income.”
- Trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of the company, I would never sell an investment that doesn’t produce.”
- Leading you to believe that other savvy investors have already invested.
- Offering to do a small favor for you in return for a big favor.
- Creating a false sense of urgency by claiming limited supply.
In a Nutshell
If these tactics look familiar, it’s because legitimate marketers use them, too. However, when we are not prepared to resist them, these tactics can work subliminally.
Little wonder that victims often say to regulators after they have been scammed, “I don’t know what I was thinking” or “it really caught me off guard.” That’s why an important part of resisting these common persuasion tactics is to understand them before encountering them.
Before you follow their marketing tactics, at a minimum, talk it over with family and friends. Go online and, using your favorite search engine, search for reviews and scams about the business.
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