Financial Scams

Question: In your career as a financial advisor, what is the worst financial scam you have seen?

Answer:    In my 30 plus years as a financial advisor and CPA, there have been many instances when I have had the satisfaction of helping clients avoid the clutches of thieves with cleverly devised plans to separate them from their money.  Unfortunately, by the time a reputable financial advisor is consulted,  it is often too late and the money has been stolen, almost never to be recovered.

Financial scams go by many names and take many forms. We hear of confidence games, Ponzi schemes, pyramid schemes, bogus investments, sweepstakes schemes, identity theft, etc.  Financial scams surely go back to the dawn of time as there have always been unscrupulous people willing to prey on the needy, the naive,  and the unsuspecting. The Bible contains several examples of financial scams, such as in the parable of the dishonest steward in Luke chapter 16.

There are so many varieties of financial scams that discussing them all would require a thick book instead of this blog, so I will comment on one of the most clever and remarkable scams I have uncovered.

Let us assume that you are a respected business owner who wants to expand  your business but needs additional capital to really make it big.  This is well known, and a friend or business acquaintance, mentions that he or she knows someone who knows someone that specializes in “unconventional financing.” Eventually you are put in contact with the “financing specialist” and a meeting is arranged. The person you meet beams with confidence, has a firm handshake and looks you right in the eye. You are impressed with his  experience and resume. The specialist carefully listens to your needs and proposes several different courses of action to help you. You come to trust this person, who seems honest and sincere and often peppers his speech with religious references and Bible verses, and constantly talks about family. Almost reluctantly, the specialist tells you of  a special program he knows about that would be wonderful, IF you can be qualify and IF you are accepted. He promises to look into it for you.

The specialist comes back to you several days or weeks later with a thick folder of legal looking documents. He tells you that there is a “secret program for trading United States Treasury securities.”  You are told that the  federal government only allows a handful of people to participate each year as the rate of return is so high.  You make your money by investing $200,000 in the program. Your investment “rolls over” several times a day, so that you may make as much as $20 MILLION in one year, depending upon the interplay of the interest rate set by the Federal Reserve and foreign currency exchange rates.  No one is allowed to participate for more that one year. You are shown impressive looking charts and  graphs. The specialist tells you that due to government confidentiality requirements, he cannot give you a copy of the material, but you are free to examine it in his presence. He further tells you that if you set up an off-shore foreign corporation to make your investment, then the earnings will not be subject to U.S. taxes.

 The specialist has a “government currency trader” call you, and that person speaks rapidly and makes you feel ignorant and unsophisticated because you do not quickly grasp how the program works. The specialist then has a “retired federal judge” call you to determine your suitability to participate in the “secret program.” By now, you are eager to get started making this huge sum of money. You happily wire the specialist his “modest” $20,000 commission to his off-shore bank account, and arrange with your bank to wire $200,000 to your offshore corporation, which the specialist has  set up.  All  the money transfers, and you wait for your profits to start. And you wait, and wait, and wait………..
WHAM! You have been scammed!  THERE IS NO “SECRET PROGAM” FOR TRADING U.S. TREASURY SECURITIES. Never has been. You are the victim of clever, polished, articulate con men and women who specialize in  swindling educated business and professional people. You had a need for funding.

The con man gained your confidence and made you want to believe
him. Angry and embarrassed, you contact the FBI. The FBI agent assigned to your complaint is sympathetic, but gives almost no encouragement for recovery of your funds. She has heard this sad tale many times before, and knows that the con men have carefully covered their tracks, and your money had disappeared.

The lesson here is simple: If it sounds too good to be true, then it is. ALWAYS consult with a trusted financial advisor, CPA or attorney. ALWAYS!