Beware of The Madoffs Among Us
Bernie Madoff, the perpetrator of one of the largest financial scams in history is in prison for the rest of his life. Unfortunately, there are thousands of others who emulate his behavior and are an ever-threatening presence in our society.
No one really knows just how much money is stolen from Americans each year. More than $100 billion is a safe starting point but it is suggested that this figure is far too conservative. People who are victims tend to underreport or simply not report. Its embarrassing, especially to someone who should “know better.”
There are numerous ways in which we are tempted to participate in too good to be true offers. The top six scams in America according to AARP include romance, charities, home repair, health care, the grandparent’s scam alarming older citizens that their grandchild is in danger and of course, investments. Newer scams include fake calls from the IRS and phony offers to serve as Wal-Mart mystery shoppers. (All you need to do is provide your checking account number so they can “mail you compensation.”) These and so many other scams exist because people fall prey each and every day.
Investment fraud victims are more likely to be financially literate, married, male and have a college degree. A study by psychologists Doug Shadel and Karla Pak uncovered this “surprising” fact. Perhaps its because smart people falsely think that they can’t be fooled.
Simon Lovell, one of the 20th century’s greatest con men is famous for stating, “I love it when people tell me they can’t be conned because in my mind they are already halfway to being conned.” Lovell spent time in prison for his many ruses and now writes and speaks about his experience as a con man.
Three measures to take to avoid being conned
There are three things all people need to do in order to minimize the probability of being scammed. First, look yourself in the mirror and tell yourself, “I can be scammed.” You may be a pretty bright person but it’s not your smarts that make most of your decisions. Witness the highly intelligent people who trusted Madoff only to uncover his dark secret much later.
Second, realizing that we’re all emotion centric, try to avoid making decisions based on emotion. Why are sales of lottery tickets through the roof when the payoff is astronomical? Even though the chance of winning is greatly diminished, people can’t overlook the chance to obtain great wealth. Likewise, when the stock market is at record highs there is a rush to participate, thus swelling valuations until another emotion, fear, kicks in and then we sell.
Third, get informed. The more information we can acquire, the better prepared we are to combat the scammers. Had Madoff’s victims asked the same questions that Harry Markopolos, (the financial analyst who proved Madoff’s purported returns were impossible) asked, they would never have invested. Most people will never be as well versed in financial matters as Markopolos, but it makes sense to obtain at least a cursory understanding of how your investments benefit you and your family.
The Tragedy of Elder Financial Abuse
The thieves have no soul and no heart. They seek out the most vulnerable among us to ply their insidious trade. And naturally, their attention turns to older Americans. Older Americans who due to the death of a spouse, may be living by himself or herself for the first time. Perhaps their cognitive faculties are failing and it’s simply easier to fool them. Or maybe the older person is just lonely and the person calling on the phone or ringing the doorbell provides them with some distraction or needed attention.
Grandparents Scam
The grandparents’ scam is when Nana or Papa receives a call and the voice sounds like their grandchild. After all, the caller has the right information about their family (due to social media exposure.) “Please wire $1,500 to this address and the police won’t prosecute me and I can come home.” Michael Angelo Giufredda, a Canadian, was caught with $100,000 in cash, various money orders and seven cell phones trying to cross the border after a highly successful scam operation.
Home Repair
“I was in your neighborhood and noticed that your roof needs repair. I can do it for a good price.” The contractor, generally unlicensed, then takes your down payment “for materials” and leaves. Or worse, the guy pretends to fix your roof and uncovers more damage to the attic, etc. and suggests he can complete the work for an additional cost. Typically, no or at least shoddy work is done and your home is in worse condition. Randall Joyner of North Carolina led a ring of 10 unlicensed contractors and scammed$300,000 from homeowners.
Bogus Charities
“Hi, this is John from the Ohio Veteran’s Source. You’ve always been a generous supporter of ours and I’m hoping you’ll send us your contribution this year, as well.” Unfortunately, this is a true story. John Hargrove of Ohio simply made up a charity that sounded official. There is a website, www.charitynavigator.com that will help you identify the good charities from the bad and non-existent.
Romance
The Internet has spawned a whole new method of scamming. Lonely men and women, very often senior, are lured into a conversation with someone looking for love. They’re actually looking for money but they are very convincing. “All I need is a few dollars and I’ll be able to travel to meet you personally. Tracey Vasseur and her mother, both of Colorado stole over $1 million pretending to be U.S. Military personnel living overseas and would email lonely people back in the U. S. and try to abscond with their money.
Health Care
Why not just print a healthcare insurance contract and sell it to older Americans? That’s just what Bruce Cherry of Pennsylvania did. He sold over $700,000 worth of bogus contracts to people who wanted to save money on their long-term care policies.
Investments
More money is stolen by rogue financial advisors than any other scam simply because the miscreants are working with trusting people with lots of wealth. Bernie Madoff could never have stolen so much money ($65 billion) by simply feigning home repair or romance. Do you know who you’re dealing with? There’s a website, www.brokercheck.com sponsored by one of the industry’s regulators, FINRA. It’s a good place to start. Simply type in your current or prospective advisor’s name and city and look for any disclosures or charges. If there’s only one, ask the advisor, as it could be very innocent. If there is more than one, take a real hard look and maybe decide to go elsewhere.
Please understand that the overwhelming majority of financial advisors are honest, hard-working men and women. But also understand that about 7%(+/-) of advisors and terminated each year for legal infractions. And 44% of those terminated are back working at another financial firm within 12 months.
So question and verify not only the advisor but also the advisor’s firm. How long has this person been in business? Are my assets domiciled at a custodian outside this person’s firm? Madoff’s weren’t and he just made up client statements.
How much am I being charged? And, what is your approach to financial planning? Is it comprehensive or just buying and selling stocks and bonds?
Recall the three admonishments earlier reported; we all can be scammed, avoid making decisions based on emotions and educate yourself and your friends. Perhaps if the scammers were met with better-prepared Americans, they would be dissuaded from their nefarious ways.
