How you can spot a con artist

Characteristic #1: They don't like to stand out.
Characteristic #2: They dress for success.
Characteristic #3: They often push poorly understood financial products.
Characteristic #4: They know what “buttons” to push.
Characteristic #5: They are fair-weather friends.
Characteristic #6: They will tell you what you think you want to hear.
Characteristic #7: They like Ponzi schemes.
Characteristic #8: They also like pyramid schemes.

Characteristic #1: They don't like to stand out.

Con artists know that being themselves hurts their business. Effective con artists must disguise their true motives therefore they take great pains to look, sound, and speak like you. Con artists like to blend in with others in your group, whether that group be political, community – such as the local senior center – religious, or other. They quickly get to know people in the group so that they can use the group to spread the word about their questionable investments and reel in unsuspecting investors.

Characteristic #2: They dress for success.

Con artists want you to believe they’re just “plain folk,” but they are smart enough to realize this alone won’t sway you to part with your money. Look for the signs –

      They work hard to be smooth and appear to look professional and successful.
         
        They operate from impressive-looking offices, or their so-called address may be prestigious but it is usually a mail drop.
 
 

Characteristic #3: They often push complex and vague financial products.

Today, a variety of institutions, from banks to brokerage firms to financial planners offer a wide range of financial products. With such a confusing mix to choose from, it’s no wonder that many people turn to financial advisers for guidance. Con artists know this and stand ready to assume full responsibility for your investment decisions. Don’t let them. When it comes to your money, think through all the options. Never give someone control of your purse strings just because you think you are too old, too young, or too financially inexperienced.

If you really need help, deal only with licensed investment advisers, broker-dealers, or financial institutions with proven track records. Click here to see if the person is licensed and if what they’re selling is registered.

Look out for these kinds of “come-ons”:
 
    New, untested technologies
       
    Cutting-edge products
       

    International opportunities such as letters of credit issued by foreign banks

Characteristic #4: They know what “buttons” to push.

Skilled con artists know how to prey upon your emotions. They'll infer that you won't have enough money for retirement or that the investments you have aren't earning enough. Con artists try to make you feel inadequate if you don’t believe them. And they know how to make you believe that if you lack confidence in them, this is a personal slight to their abilities. If you find yourself making investment-related decisions based only on your emotions, watch out.

Characteristic #5: They are fair-weather friends.

When you first meet, con artists are very friendly. They take a personal interest in you. They call back when they promised. Each time, they tell you even more good things about the investment.

In fact, the contacts may become so frequent that you may wish that your first contact had been your last. Too often, however, once you have invested your money, contact with the con artist dwindles and then stops altogether. Danger sign: Not hearing from the con artist, especially when you repeatedly try to contact them.

Characteristic #6: They will tell you what you think you want to hear.

Every investment involves risk. But to hear the con artist explain it, the investment can't fail. Trust your inner voice when it tells you something sounds too good to be true, especially when you hear claims like these:

"I just got a hot tip from an inside source that this stock will go through the roof."

"The rumor on the street is that this deal is about ready to take off."

"Your return is guaranteed. There's no way you can lose money."

"Gotta get in on the ground floor now, or you'll be left out in the cold. We'll send
a messenger over tomorrow to pick up your check."

(Con artists often use this device to avoid federal mail fraud charges.)

"This deal is so great, I invested in it myself."

"If this doesn't perform as I just said, we'll refund your money, no questions asked."

"Everyone else who invested in this did very well."

Remember: investment opportunities that seem too good to be true probably are. Be especially careful if the salesperson downplays any downside or denies that risk exists.

Watch out if the salesperson is reluctant to provide information on the following:
 
  The background, education, and work experience of the deal’s promoters, principals, or general partners
  Information on whether your investment monies will be segregated from other funds available to the business
  Written information on the business’ financial condition, such as a balance sheet and bank references
  The track record of the business and its principals
  The salesperson’s name, from where he or she is calling, who he or she works for, his or her background, and what commission or other compensation he or she will receive
  The salesperson’s real interest in the venture and any affiliates

Be wary if the salesperson doesn’t ask you questions about your past investment experience and your ability to withstand risk. Even if the salesperson does ask a few related questions, beware if you get the sense that he or she is merely going through the motions.

Characteristic #7: They like Ponzi schemes.

Self-respecting con artists won’t admit that they’re involved in a Ponzi scheme. In a typical Ponzi scheme, large returns are paid to initial investors out of the funds of later investors. This gives the first investors confidence and motivates others to invest. Unfortunately, the later investors lose all or most of their money. If you are promised high, guaranteed profits and given no documentation about the investment, the promoter, or the risks, be careful. Ponzi operators also tend to persuade you to “roll over” your “profits” into yet another investment, so your return ends up on paper only.

Spotlight
The Ponzi scheme was named after Charles Ponzi, an Italian immigrant who, after being jailed in Canada for fraud, came to Boston in about 1919. Ponzi solicited people to invest in International Postal Reply Coupons that could be redeemed for stamps. He promised them a 40 percent return in just 90 days. Authorities discovered that there were not enough coupons in circulation to support Ponzi's schemes. He was imprisoned in Massachusetts and then deported to Italy. The scheme he created, however, continues to survive in many forms.

Related links
Examples of real Oregon Ponzi schemes.
Can you spot a con artist? Click here to take our quiz.


Characteristic #8: They also like pyramid schemes.

Pyramid schemes are a variation of the Ponzi scam. Think of a pyramid. Money is collected from people on the bottom to pay off other individuals farther up the pyramid. As more people invest, new pyramid levels are created, and your position in the pyramid rises. In theory, you would be entitled to more money. Many times, you must also buy a product to join. However, unlike a true multi-level marketing plan, selling the product is less important than recruiting others to join the network. Ultimately, there comes a time when no new money flows in. When this happens, the pyramid collapses.

Tips to help you avoid falling prey to a con artist.

Contact the Oregon Division of Finance and Corporate Securities – Oregon’s securities regulator – to see if the investment product and its seller are registered.
  The division will be able to tell you if the salesperson has a disciplinary history — that is, whether any civil, criminal, or administrative proceedings have been brought against him or her. You can check here.
Deal only with financial advisers, broker-dealers, or financial institutions having a proven track record.
Ask for written information on the investment product or the business. Such information, including financial data on the company and the risks involved in the investment, is contained in a prospectus. Read it carefully.
Don’t take everything you hear or read at face value. Ask questions if you don’t understand, and do some sleuthing for yourself. If you need help evaluating the investment, get an objective point of view from your attorney or an accountant.
Avoid investments touted as having no downside or risk.

The Oregon Financial Information and Identity Theft Outreach programs provide publications and speakers covering a wide variety of investment-related topics.

Speakers are available to
community groups and organizations at no charge.
Groups interested in scheduling a program representative can call:
(503) 378-4387
(866) 814-9710
or email: dcbs.dfcsmail@state.or.us

Always look beneath the surface.
Check out the person here.


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