Still Waiting for those Golden Years: Avoiding Frauds and Scams

I recently read an article in the Deseret News entitled, "Does Utah deserve the title 'fraud capital of the United States'?" According to the study cited in the article, the answer to the question was yes, Utah is the fraud capital of the United States. I really didn't need a newspaper article to make me aware of that fact. Utah and particularly Utah Valley, where I now live, have had that reputation for many years. The study cited only referred to Ponzi schemes, but there are a lot more frauds out there to catch the unprepared and unwary.

Over the years as a practicing trial attorney in Arizona, I encountered a sizable number of instances of fraud and not surprisingly, quite a few originated in Utah. In fact, some of the first clients I had, right out of law school, were involved in a huge land sales fraud called Lake Havasu Estates.  See "Land Fraud Target of U.S. Crackdown." That particular fraud instigated an overhaul of the land sale regulation in the United States. That particular fraud did not originate in Utah, it involved land in Arizona. It took a while to stop these types of sales. See "18 Indicted in Arizona Land Fraud Costing 10,000 Victims $40 Million." This one was called the Cochise College Park land fraud.

I still fail to understand how so many people can be defrauded of so much money. I was recently in a meeting here in Utah Valley with about 4- or 50 people who were mostly older than I am. The question was asked as to how many of these individuals had lost money due to fraud. To my surprise, I saw more than half of the peoples' hands go up.

I have a naturally inquisitive and suspicious nature. I learned long ago that is an offer or deal seemed too good to be true, it almost always was a fraud or scam. When do sales practices cross over into fraud and scams? When what is being sold or represented has little or no value and may even be detrimental to the buyer. The current classic example is the Nigerian Prince scam. Quoting from the Australian website Scamwatch.gov.au in an article entitled Nigerian Scams.

Nigerian scams involve someone overseas offering you a share in a large sum of money or a payment on the condition you help them to transfer money out of their country. While these scams originated in Nigeria, they now come from all over the world.

There is a long list of variations on this basic scam. This category of scam is called the "unexpected money or winnings" scam. It has a lot of different forms that include rebate scams and inheritance scams.

The classic Ponzi Scheme involves a proposed investment where the rate of return is much better than what could usually be expected and the first "investors" get a better than expected return which is paid from the subsequent investments of new investors until the entire structure collapses. The challenge of detecting these scams is that the perpetrators are usually people who are either well known to the victims or closely associated with people who are well known. The greed and duplicity of the victim is the core of almost all successful scams and frauds.

If someone steals your money or property without your knowledge or agreement the crime is theft. If you rely on representations made to you and willingly turn over your property and then lose it, that is fraud. A scam is the mechanism for committing a fraud.

So how can you avoid being defrauded?

Obviously, the victims of fraud are more common among those with diminished capacity. But anyone lets emotion overcome reason can be a victim. This is usually the case with frauds committed by people who are in your same religious or social organization. These are called affinity frauds. You trust the person because he or she is a known member of your organization. In every case, the person perpetrating the fraud first gains your trust in some way.

Here are five basic rules for avoiding frauds and scams:

#1 If it sounds too good to true, it probably isn't

High rates of return on investments usually are made by people who understand exactly what is at risk and make a judgment call to invest.

#2 If it is a once in a lifetime opportunity, you probably will lose money on the deal

As I grew up in Phoenix, Arizona, there was a common lament; if I had just invested in property along Camelback Road, I would be rich now.  Yes, that would be possibly true but it ignores the fact that some people did invest in property along Camelback Road and other parts of the Salt River Valley and made a lot of money. Why did these people make money when you did not? Probably because they had money to invest and knew enough to invest in land. But as I mentioned above, there were plenty of people who bought land in Arizona and lost all of their investment even when there was not any fraud.

#3 If you have to decide right now or the opportunity will go away, then waiting will save you a lot of grief

Fraudulent schemes almost always come with a deadline for investment with the idea that there will not be enough time for the victim to reflect on the "opportunity" or consult with those who may be able to detect the fraud. If an investment is good today, then it will probably be good tomorrow. If you had purchased stock in Apple Computer years ago, you would be rich today is not the basis for making an investment today. Most sound investment strategies involve investing in a variety of areas that include stocks, real estate, and other time-honored investments.

#4 Don't lend money to relatives with the expectation of every being repaid 

If you do get repaid consider it a bonus. Many frauds are committed by family members. It is possible that your family member has a legitimate investment opportunity, but if he or she does, then they certainly won't mind having their investment proposal reviewed by an attorney and an accountant.

#5 Never give personal or financial information to anyone without knowing exactly who they are and why the information is needed

Most online frauds are based on obtaining personal and financial information from unsuspecting victims. Simply make an ironclad rule that you never give that kind of information to anyone unless you initiate the contact. Even if someone calls representing that they are calling from your bank if you did not initiate the call then terminate the contact immediately and call your bank or whatever directly on a publically available number to verify the contact. What is better is to go to the bank or other institution and ask them about the contact.

This rules will go a long way towards avoiding being defrauded. But remember, stop and think before you act.