When Peter Allen and Carole Bayer Sager wrote the tune "Everything Old Is New Again," they were probably hoping for no more than a Top 40 hit. Instead, the song became an oft-recorded classic, mostly because the title proved a truism in so many areas - especially in the seamy world of financial fraud.
Indeed, over the past 40 years, only one new entry has been added to the Federal Bureau of Investigation (FBI) roster of "Top 10" investment scams - the very broad category of "Internet fraud." The other financial rip-offs listed are merely new versions of tried and true swindles that have been around for decades or more - from Ponzi schemes and pyramid systems to phony stock offerings and commodity cons.
The big difference is that the one new category - Internet fraud (and the computers on which the Internet operates) - has greatly increased the frequency, speed and effectiveness of the other types of financial fraud, as well as exponentially increasing the scammers' take.
[mm-toolbar]In 2009, there were 6,062 robberies of physical bank offices and branches, netting the perpetrators a total of $45.9 million in loot, more than $8 million of which was recovered by law enforcement officials. (Twenty-one of the robbers were also killed.) By contrast, there were more than 14,000 reported (and countless unreported) online attacks on banks and bank customers, with the estimated loss exceeding $110 million, almost none of which was recovered. (None of the e-thieves were killed.)
In addition, where physical bank theft is local, online robbery is global. MSNBC last month reported that a ring of cyber thieves based in Eastern Europe had used a so-called Trojan horse computer program to steal more than $1 million from the accounts of more than 3,000 British bank customers in just four weeks - and, even though the banks had identified the problem, they still haven't been able to stop the thefts.
That mirrored an even broader rip-off of banks and their customers in November 2009. According to the FBI, a highly sophisticated group of thieves using cloned or stolen debit cards, with PINs gained primarily via Internet phishing scams, hit more than 2,100 ATM machines in 290 cities across North America, Asia and Europe, walking off with more than $9 million in cash in under 12 hours. That figure would have been much larger had many of the ATMs not been drained of all their bills.
Banks aren't the only targets, either. Overall, the FBI counted 335,655 complaints of online thieves targeting U.S. consumers, financial institutions, brokerage firms, retailers and other companies that maintain customer accounts in 2009, up 22.3% from 275,285 in 2008. The total 2009 take in those incidents was estimated at $559.7 million, up from just $264.6 million in 2008.
And those numbers will almost certainly increase dramatically in the decade ahead, thanks to the growing use of cell phones, laptops and home computers to access personal bank, brokerage and other types of online accounts.
The National White Collar Crime Center (NW3C) says direct online thievery is just a drop in the bucket compared to all white-collar crime, most of which involves some form of investment or financial skullduggery. Examples include bankruptcy fraud, bribery, credit card fraud, counterfeiting both of currency and securities, embezzlement, identity theft, insurance fraud, kickback schemes, money laundering, price fixing and others.
The total cost of worldwide white-collar crime rose from just $5 billion in 1970 to $20 billion in 1980, $100 billion in 1990 and $220 billion in 2000, according to NW3C surveys and research of global law enforcement and regulatory reports. The total could reach $400 billion in 2010.
But while the technology may have changed, financial scammers continue to rely mostly on the old standards.
The Ponzi scheme, named for Charles Ponzi who first used it in the early 1900s to fleece investors out of $10 million, continues to head every list of top financial frauds, probably because of its simplicity. The perpetrator merely promises huge returns and then delivers them, using money from new investors to pay off older ones, who praise the investment and draw in more and more new investors - until the operator has built up a big enough cash pool to abscond with all the money. See Bernie Madoff!
The big difference now is that the Internet can bring in money to the Ponzi operator in days rather than the months it used to take. The same is true of pyramid scams, where early investors profit by bringing in new suckers and raking off a share of the new money - until the whole thing collapses.
The Internet is even better suited to more complicated frauds. Using e-mail and/or highly professional-looking Internet Web sites, white-collar thieves can send out hundreds of thousands of sophisticated marketing appeals or official-looking documents in a matter of hours, reaping hundreds or even thousands of responses.
Problem is, the charities are bogus, the investments are phony, and the operators are long gone.
Seniors are particularly susceptible to many of these scams, being sold false charitable gift annuities, viatical settlements, reverse mortgages, or having their pension funds drained.
In 2005, for example, Pennsylvania authorities shut down a well-promoted "IRS-approved, IRA-authorized" investor plan that pulled more than $2 million out of senior pension programs in the state.
Of course, seniors aren't unique - anyone can fall victim to an investment scammer. Following are nine other types of frauds or dubious investment offers you might encounter:
A comprehensive list of potential financial and investment scams would have many more entries, but the ones above should suffice to raise your suspicions any time you encounter an offer that sounds "too good to be true." Don't put your money on the line for anything you don't completely understand - that goes for potential risks, as well as rewards. And always verify that the offering company actually exists and the person presenting the offer is properly licensed, not just a glib talker with a slick presentation.
Finally, if you'd like a beginning primer on how to avoid being a victim of an investment scam, you might also check out "Six Simple Steps to Protect Yourself From Financial Fraud," a consumer guide offered by Investment U, another leading online newsletter.
[Editor's Note: To learn more about where victims of financial scams can turn for help, please click here.]
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