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Scams of the Modern World – I

As most of us would agree, greed and gullibility fuel the growth of unscrupulous people and their myriad ways of deceiving the public through various channels. The scams we read about are diverse in nature and the investment industry has not been left untouched either. Below are some of the typical scams that we should be aware of and also let our near and dear ones know.

Pyramid Schemes

These schemes depend on the availability of enough victims to perpetrate the con. Pyramid schemes are sometimes referred to as network or multi-level marketing schemes. A well-known type is the Ponzi scheme, where the con artist uses the principal from the latest investor to pay interest/dividend to the previous investors. The scheme inevitably fails when the money owed to such previous investors exceeds the inflow from new victims.

Off-shore Investing Schemes

Such schemes are marketed with the promise of “great” and/or “guaranteed” returns through investments in exotic locations. The perpetrator seldom provides concrete details about the business they are investing in and if they do, the documents are likely to be forged. It should not surprise you if the cheating party goes as far as to set up a fake website about the business, thereby lending purported credibility to the scheme. Sometimes, the company could be legitimate but the marketer/tipster may wait for enough buyers to drive the stock price up and then, sell their own shares for a gain (see Pump and Dump and Short and Distort). The Internet can be a boon and bane and it is tough for local authorities to prosecute such foreign criminals.

Guaranteed Job or Work from Home Scams

As you would guess, such stellar opportunities almost always require a fee for processing the application or providing the operating procedure/plan for the business. Spam emails and cold calling are commonly used to lure victims. The tougher the financial/family situation of the victim, the easier it is for the scammer.

Investment and Real Estate Seminar Scams

Some con artists thrive by promising to share their secret to stock market or real estate riches. These con artists use high-pressure sales tactics and profit from the attendance fees paid by the victims. In addition, they could offer information about high-risk strategies masked as low risk/high return opportunities. Please note that there are legitimate seminars being offered and this section is not an attack on all seminars.

Business Proposition Scams

These could be once-in-a-lifetime email offers to assist a Nigerian prince or Malaysian business tycoon’s son. The victim is promised hundreds of thousands or millions of dollars (I am yet to receive a believable offer of just a few thousand dollars) if they assist the said person, who has access to millions of dollars. All one would need to do is call a number or reply to the email to discuss the details (provide bank info or pay fees along the way) about getting the money out of the originating country.

The next part of this series will touch upon a few more scams that are prevalent today. Have you or anyone you know fallen prey to one of the scams above? What recourse did you (or they) have?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism.  You can read his other articles here.

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About the author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

{ 11 comments… add one }
  • Steve February 8, 2012, 10:36 am

    Should “Defined Benefit Plans” be a sub-heading under Pyramid Schemes?

  • Kyle February 8, 2012, 10:55 am

    It’s funny that as I read this article, I noticed one of the banner ads displayed nearby was urging me to click to find out how I can make $97 dollars an hour from home using the internet.

  • Emilio February 8, 2012, 12:19 pm

    You forgot the bank scams

    Lehman Brothers
    Goldman Sachs
    Merryl Lynch
    Deutsche Bank
    Citibank
    RBC

    1) They operated under the premise of bundling a bunch of subprime mortgages together in fancy derivatives called CDOs.
    2) These banks conned agencies into rating these investments AAA
    3) Then they took insurance against these investements called CDS from the likes of AIG
    4) Run each other and insurer into the ground
    5) Get sovrain governments into bailing them out with taxpayer money
    6) PROFIT

  • Fit February 8, 2012, 1:11 pm

    There are 3 “scams” that come to mind… of which, the product and company are not so much in question… just some individuals promoting them haha.

    Body by Vi
    Primerica
    Scentscy (kinda)

    Again nothing wrong with the products or companies, just some people flooding my facebook with “you can make SOOOO much money! sign up now”

    Everybody wants the outcome $$$ without putting any real effort into anything

  • Marianne February 8, 2012, 1:32 pm

    Fit- I also get frustrated with MLM. I have ‘unfriended’ people on Facebook because I can’t stand to hear about Body by Vi anymore and my mother in law was selling Primerica (has switched to Investor’s Group now) and constantly being sold to gets soooo annoying!! The funny thing is that our family does profit from MLM. We sell Amsoil but we just sell to retailers so we don’t have to sell to our friends and family. This is the perfect set up for us.

  • krantcents February 8, 2012, 4:56 pm

    I usually am pretty cynical of these kinds of deals. If it looks too good to be true, it usually is. I seem to know and stay away from these scams.

  • BadCaleb February 8, 2012, 7:25 pm

    And yet none can match the awesome marketing skills of Tom Vu from the ’80s.

  • Joe February 8, 2012, 10:59 pm

    “I know I’ve tried a lot of get-rich-quick schemes. This is different. I know I’m going to get rich with this scheme… and quick!” – Homer J. Simpson

  • SST February 9, 2012, 4:02 am

    “…greed and gullibility fuel the growth of unscrupulous people and their myriad ways of deceiving the public through various channels.”

    The financial industry (and all its tentacles) and the world of politics seem to naturally breed this sort of behaviour on a more grand and insidious level than any other sector of society.

    Perhaps my rose glasses need cleaning.

  • Joe February 9, 2012, 9:16 pm

    Another big scam — as a Canadian Big Bank, convince the Government to setup a taxpayer-backed company to insure any mortgage you can sell (the CMHC). Lobby for slashed regulation to get 0% down, 40 year amortization loans (predicated on extraordinarily low 2% rates). Furthermore, start unscrupulously issuing NINJA loans but claiming the “self-employment” and “immigrant” mortgages are very sound, because people would NEVER lie about their incomes to buy something. Promote HELOCS until Canadian debt levels hit 160% of income (higher than American debt levels). Then, as prices skyrocket because of lax lending, securitize ever-higher priced mortgages – all insured by the taxpayer-backed mortgage insurance company. Whisper sweet nothings in the ears of the Government and the media, and enjoy spinoffs from the corrupt self-promoting greed of the Realtors and mortgage brokers. Bank the profits until the market collapses. When the market collapses, enjoy your taxpayer-guaranteed stream of profits. Sounds like a pretty sweet scam for bank shareholders to pull on the Canadian taxpayers! If you think we’re different – that the good times can never end – then consider this: our price:income, price:rent ratios are at all time highs; there are 176 condo buildings under construction in TO, whereas NYC has under 100 (but over FOUR TIMES the population). My condo building just registered and there are 10 units on tMLS (even more based on the private “for sale” signs and posters; some investors bought and are trying to dump multiple vacant units. What a profitable, LEGAL scam!

  • Young and Thrifty February 11, 2012, 7:23 pm

    Nothing like a good old pyramid scheme or get rich working at home scheme to start the day. If one more person calls with the “are you interested in making some fast legal money” line…

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