How to spot a scam

Unfortunately, it happens all the time.  The best official estimate is that almost a million Americans are victims on cyber related fraud each year. This is not the same as being hacked, where computer systems are compromised. Fraudsters use clever narratives to convince victims to willingly hand over their cash, or the rights over the assets. There are many scams and they are difficult to spot. However, they often share some common characteristics.  If you see any of these red flags, it is time to pause. Here is how to spot a scam.

1. Messaging that is urgent, designed to make you fearful or act out of fear

If you receive a message or a call from someone, especially a stranger and the message is specifically designed to evoke fear, it might be scam. One of my clients received a call saying their account had been hacked, used for money laundering, and that my client was going to be indicted if he did not cooperate with the FBI – all he had to do was turn over his bank information. The story sounded credible and evoked immediate fear and the need act immediately. Thankfully my client was able to calm his fears, begin to question the story, and stopped before turning over vital information. Scammers know that when we are fearful we do not think clearly and can act rashly.  Don’t fall for it. If you find yourself fearful when you are making a financial transaction, take a pause. Calm your fears and make sure you are confident that the transaction is real.

2. Exorbitant returns, especially when coupled with ‘covered losses’ or ‘guaranteed returns’

The second tool that scammers use is simple greed. They may promise higher than normal returns, usually through an innovative but opaque and secretive system. Often they will simultaneously claim that the investment is safe. Scammers can sound credible and can fool sophisticated investors. An excellent example of this scam came from Allen Stanford at Stanford International Bank. Stanford Bank advertised bank issued CD’s at 12% interest, substantially above rates of any bank in the US, and claimed that they were safely invested – they were CD’s after all. Unfortunately, the 12% returns were part of a $7 billion ponzi scam and investors in these safe CD’s lost everything. Sure, there are investments that can earn 12% but they are not ‘safe’, they are risky. If someone is pitching high returns without risk then that is a red flag - it might be a scam.

3. Brokers or exchanges that are out of the ordinary, investments that are non-standard

The last red flag relates to where you invest. While there are credible investments outside of the big brokerage houses, they can be like the wild west, so caution is warranted. If you are being asked to send money directly to a little known investment or investment firm, then this is a red flag. Do your homework before sending the money. Note that making a small dollar investment does not necessarily validate the firm or investment house. Sometimes fraudsters will show a return on a $100 or $1,000 investment to entice you into making a larger investment where the money disappears.

When I was a student traveling through Europe I learned to keep my head on a swivel, always alert for pickpockets. (It served me well until I finally lost my wallet to a stealthy thief in Italy). In today’s world we are all travelers and should similarly learn to be wary. Increased communication means that fraudsters can reach us through our phones, text messages, emails, and social media. They can inexpensively find targets to begin a scam. My encouragement to you to learn to be aware. Watch for these red flags and keep your money safe.