By taking the following precautions, you can spot a scam and avoid being ripped off.
Internet crime such as identity theft and online fraud racked up an estimated $2.7 billion in losses in 2018 according to an Internet Crime Complaint Center (IC3) estimate, underscoring the fact that both legitimate businesses and scam artists alike have equal access to the Internet.
How can you avoid being snared by Internet fraud? Simple. If it sounds too good to be true, it is. Claims of “quick profits”, “guaranteed returns”, “double your investment”, or “risk-free investment” probably indicate a fraudulent investment.
Here are a few of the scams making the rounds on the Internet these days.
Refund Scam. This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase â€œlast annual calculations of your fiscal activity.â€
To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not complete a special form to obtain their federal tax refund â€” refunds are triggered by the tax return they submitted to the IRS.
Lottery winnings or cash consignment. These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they’ll receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it.
Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.
Romance Scams. Scammers sometimes use online dating and social networking sites to try to convince people to send money in the name of love. In a typical scenario, the scam artist creates a fake profile, gains the trust of an online love interest, and then asks that person to wire money, typically to a location outside the United States.
Warning signs of a romance or online dating scam include wanting to leave the dating site immediately and use personal e-mail or IM accounts, claiming feelings of instant love, planning to visit, but being unable to do so because of a tragic event, and asking for money to pay for travel, visas or other travel documents, medication, a child or other relative’s hospital bills, recovery from a temporary financial setback, or expenses while a big business deal comes through.
Do not subject yourself to fraud by allowing a merchant to write your credit card number on your personal check or your personal information on a bank credit card sales slip. Do not divulge your social security number if you can avoid it.
“Application fraud” occurs when a thief uses your name, Social Security number, address and, perhaps, credit references to apply for credit. They can get much of this information from public sources (e.g., Who’s Who Directories), from someone who has access to credit files (e.g., employees of car dealerships, department stores, or credit bureaus), from personal checks, or from stolen wallets. Credit thieves may be aided by “credit doctors” who are paid hundreds of dollars for finding a good credit record for the thief to use.
Another form of application fraud involves the interception of pre-approved credit card offers in the mail. The thief fills out the application and either changes the address or steals the credit card out of your mailbox when it arrives at your address.
Tip: If you find a bill that you do not believe belongs to you on your credit report, check it out immediately. First, contact the creditor to find out if they have an account in your name. Ask to see a copy of the original application if they say you do.
Consumers with credit problems have paid millions of dollars to firms that claim they can “remove negative information”, “clean up credit reports”, and allow consumers to get credit no matter how bad the credit history. Consumers should beware of the following promises by credit clinics:
The loopholes are the provisions of the Fair Credit Reporting Act (FCRA), under which you have the right to challenge information in your credit report you believe incorrect.
No matter how quickly you may pay off outstanding bills, creditors are under no obligation to remove negative information from your file.
You will have to “secure” the card first by putting a deposit in the bank and getting a bank card with a credit limit based on a percentage of that deposit. Why should you pay the credit clinic just to provide an application and deposit slip?
Check with your state attorney general’s office to determine if your state has laws that protect consumers against credit clinics and contact your state Attorney General, consumer protection agency, or Better Business Bureau to check an organization’s reputation.
Advertisements touting access to little-known sources of federal government property are simply selling the names and addresses of the federal government agencies, which you can get from the federal government or by contacting the agency’s local or regional office. Furthermore, the information sold by these businesses may not be accurate or up-to-date. Information about federal sales programs is available for free or at low cost from the federal government by visiting: Government Sales and Auctions.
Penny stocks are common shares of small public companies that trade at less than $1.00 per share. They are considered to be highly speculative and high risk and are traded over the counter and are prime targets for price manipulation. Here is how penny stock scam might operate:
Example: Mrs. G got a call from Mr. S, who told her he wanted to help her out with a “little-known” investment bonanza. These penny stocks’ price could rise by 25 percent in a few months. After she was told to act before the opportunity vanished, Mrs. G invested $5,000 in the penny stocks. Result: She is still trying to get back her $5,000.
Although she was told during the first few weeks that the stock was going up, within a month the seller was not returning her phone calls. She could not check the price of the stock because penny stocks are not traded on an exchange, but over-the-counter.
Further, the price of the penny stock was not published anywhere. Mr. S’s company was the only seller of these particular penny stocks and had been engaging in price manipulation. Eventually, Mrs. G. turned the case over to her attorney. Half of her $5,000 went in the markup of the penny stock’s actual price and hidden commissions.
Penny stocks can be a legitimate investment opportunity if you learn to be alert, but with the proliferation of the Internet, these stocks are often quite risky for the average investor. Learn the following warning signs investigate before you invest.
Warning Sign #1: Unsolicited Telephone Calls
Beware of a salesperson who promises you quick profits with little or no risk.
Warning Sign #2: High-Pressure Sales Tactics
These tactics include the following statements by a salesperson:
Warning Sign #3: Inability to Sell Your Stock and Receive Cash
Fraudulent penny stock brokers may become inaccessible when you want to sell, or they may refuse to sell your stock unless you buy another one.
The best way to protect yourself is to understand how pyramid schemes operate, as this example shows:
Example: Frank L. was phoned by a friend and offered an opportunity to “get in on the ground floor” of a business involving selling products to the public. He was told he would get a 50 percent return on his money within a month and how his friend had made thousands of dollars on a $1,000 investment. Frank L. quickly accepted the offer and gave his friend $1,000 to buy a “distributorship” in this business.
What Frank didn’t know was that his friend had fallen victim to a pyramid scheme. Such schemes work as follows: A promoter offers investors “distributorships” at $1,000 each. The distributorships give the investor the right to sell other distributorships to friends and neighbors for $1,000 each, and also a right to sell some sort of product. Whenever an investor sells a $1,000 distributorship, he or she must give a percentage, usually half, to the promoter, and can keep the rest.
The tricky thing about pyramid schemes is that, for the first ten or twenty investors, they work. But, the pyramid scheme could continue to provide returns only in a world where there are infinite numbers of investors willing to invest $1,000, and willing (and able) to sell distributorships to others. Returns depend totally on new investors making an investment rather than on any business venture.
Result: Because Frank had no sales ability, he was unable to unload even one distributorship, and thus the $1,000 was lost. He is currently trying to get his money back and has reported the investment to the SEC.
Named for Charles A. Ponzi, who defrauded hundreds of investors in the 1920s, a Ponzi scheme pays off old “investors” with money coming in from new “investors.”
Example: Investor A gives Promoter (“P”) $1,000 on P’s promise to repay $1,000 plus $100 “interest” in 90 days. During the 90 days, P makes similar promises to Investors B and C, receiving $1,000 each from them. At the end of the first 90 day period, P may offer to pay A the $100 “interest” and to return the original $1,000.
More likely, he will invite A to “re-invest” the $1000 plus the $100 “interest” for a similar, or higher, return at the end of another 90 days. Thereafter, A, believing s/he can receive a good return on the investment, is likely to bring other investors to P.
P collects a pool of money that he pays out to those wishing a return on their invested money. Eventually, P. either disappears with all the “investments” or reveals that the investments went “sour.”
A major factor in the eventual collapse of a Ponzi scheme is that there is no significant source of “income” other than from new investors.
Since travel services usually have to be paid for in advance, disreputable individuals and companies try to sell travel packages turn out to be different from what was presented. If you receive an offer by phone or mail for a free or extremely low-priced vacation trip to a popular destination (often Hawaii or Florida), there are a few things you should look for:
If you encounter any of these symptoms, ask for written information and time to think it over. If they say no, this probably isn’t the trip for you. Furthermore, if you are told that you’ve won a free vacation, make sure you don’t have to buy expensive hotel arrangements in order to get it.
If you are seriously considering the vacation offer, compare it to what you might obtain elsewhere. The appeal of free airfare or free accommodations often disguises the fact that the total price exceeds that of a regular package tour. Get written confirmation of the departure date. If the package involves standby or waitlist travel, or a reservation that can only be provided much later, ask if your payment is refundable if you want to cancel. If the destination is a beach resort, ask the seller how far the hotel is from the beach. Then ask the hotel.
Determine the complete cost of the trip in dollars, including all service charges, taxes, processing fees, etc. If you decide to buy the trip, paying by credit card gives you certain legal rights to pursue a chargeback (credit) if promised services aren’t delivered.
Laundered lemons-used cars with serious defects, sold to unsuspecting new buyers are still being sold in alarming numbers. To avoid buying a “laundered lemon”, take these steps.
Do your research. Check Consumer Reports and Edmunds online. Both publish car reviews and are good sources for finding out whether a vehicle is reliable and has been trouble-free.
Check for defects, repairs, and recalls. Visit the federal government’s databases to find out whether the vehicle (make and model) you’re interested in has been recalled, as well as service bulletins, safety investigations, and owner complaints. Check with your local dealer’s service department to verify that the problem (if there was one) was taken care of.
Inspect the Vehicle. Conduct a thorough visual inspection inside and out. Look for signs of rust, mildew on carpeting, fluid leaks, bodywork repairs such as mismatched paint, and wear on tires. With the engine running check the exhaust smoke color and smell. Verify that the horn and lights are all working properly. Finally, have a reliable mechanic look it over. While it might cost a few bucks, he will be able to spot things you can’t.
Vehicle History Report. If you know the car’s VIN (Vehicle Identification Number), visit CarFax and enter it into their database to obtain a vehicle history report. The report will show you whether there are title problems, what the ownership history of the vehicle is, service records and whether the vehicle has been involved in any accidents. The VIN is located on the driver’s side dashboard.
Also consider the following:
It is estimated that anywhere from one-quarter to one-half of the $90 billion Americans spend every year on car repairs is wasted on the following scams:
Tip: If the defect is safety-related, you can call 800-424-9393 for a list of warranties and recalls or visit SaferCar.gov
These tips on how to avoid becoming the victim of a con artist or pickpocket are provided by the New York City Police Department’s Special Frauds Squad.
Being aware of the most current scams is the best way to prevent falling prey to them. If you or someone you know has been a victim of a con artist, call your local police precinct immediately.