Types of Financial Fraud
Thieves are continuously working on new scam schemes to separate you from your money. How can you protect yourself? Two tools. The first is getting a MoneyFAX Report on whoever approaches you with the investment. It’s free and easy way to know who is managing your money. The second is to be aware of the type of financial frauds.
Here are the most common:
- Embezzlement: A person entrusted intentionally misuses or misappropriates income or other assets. Most commonly perpetrated a family member, friend, trusted financial adviser, or other professional (i.e. Lawyer, Accountant).
- Ponzi Schemes: A perpetrator convinces investors to invest in a stock, bond, project or a business with the promise of high yielding returns. Instead of investing the funds, the perpetrator uses the funds for their own personal use. When the perpetrator needs to pay back investors, they use new investor funds. As you can see this is a continuous cycle where the perpetrator must always get more and more new investor dollars to maintain the scheme of using the funds and paying returns to investors. Hence a “Pyramid Scheme”. Ultimately, new investors funds drops off and demands from investors increased beyond the new investor dollars and the scheme falls apart. Investors lose their money and must sue the perpetrator and assets to try and get some of their money back. Ultimately it may, at most, be pennies to the dollar invested.
- Pump and Dump: A perpetrator convinces (Pump) investors to buy a stock “before” big news hits about the company selling the stock (i.e. cancer cure drug). Investors buy the stock in great volumes and the price spikes. Unknown to these investors, the perpetrator sells their shares (Dump) when the price spikes to take advantage of the high price. Then the stock is abandoned by the perpetrator and they no longer promote or “Pump” up the stock, thus no new investors or demand for the stock and the price drops and the investors take the loss.
- Investment Property: A perpetrator convinces the victim to buy an investment property with the promise a lucrative return. The catch, must buy through a “property management firm” that will take care of the loan, make loan payments, get tenants, collect rent, and maintain the property. The victim only has to be the buyer and borrower and they handle everything else. What happens? The property management firm collects rent, does not make the loan payments or anything else. The property falls into foreclosure. Stolen rent revenue, damaged credit.
- Prime Bank: A perpetrator sells “World Paper”, “International Monetary Fund Bonds”, or “Federal Reserve Notes”. These terms and investment instruments do not exist. If they say “Prime Bank”, walk away.
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