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The Resource Center Online Security Issues & Protection | post

Of the five most common financial scams some depend on identity theft

by Steve Schwartz on

Every year in this country people are separated from millions of dollars by scammers, some of whom do not even bother with the complexities of identity theft. Rather they use financial scams that are based on simple misrepresentations and the gullibility of their victims.

CNN/Money has put together their list of the five most common scams out there. Most have been around for years, although some are updated to take advantage of the latest news.

Here are the five:

E-mails from abroad:

Recently I told you that the U.S. Federal Trade Commission has signed a new agreement with two agencies of the Nigerian government to collaborate on efforts to stem the many Nigerian scammers who target Americans. CNN/Money still puts the so-called "419 Nigerian scam" at the top of the list of active scams.

The end game of these scams does depend on identity theft.  The scammers say they have millions of dollars and they need your help to transfer out of their country. You'll get the millions and they will let you keep say 25% for your trouble and you transfer the rest to them. They just need your bank account information first.

‘Free’ lunch:

CNN/Money says fraudsters still try to lure victims with invitations to free luncheons where they pitch fraudulent investments. They often promise triple-digit returns in this age of almost no interest on bank deposits so that sounds awfully good.

Since you're getting a nice lunch (or sometimes dinner) you possibly feel you need to give back to the sponsor. But often these investments are for entities that don’t even exist. Give them your money, and they’ll never be seen again, nor will your "investment."

I guess you have to remember that old saying that there is "no such thing as a free lunch."

You won the lottery!:

The victim is told they won millions in a lottery they never actually bought a ticket for. The "lottery" is often abroad, say in Canada or Ireland, and the scammer provides a reason the intended victim was entered in the lottery.

The catch is, of course, in order to claim your prize; you have to first pay fees — for customs or processing, or some other creative fee that the scammer creates.

Who could fall for such a scheme you think. Well, a elderly woman was told she won a lottery based in England because it was her late husband's place of birth (the scammers knew this fact) and all expat citizens born in a certain year (the scammers knew that also) were entered in a lottery in celebration of the Queen's birthday.

She fell for it to the tune of several hundred thousand dollars (really) and later she and her children sued her bank for not inquiring why she was suddenly making a six figure wire transfer to a foreign bank account. The court of appeals has just ruled that the bank has no obligation to save depositors from themselves, even in a case as extreme as this elderly woman.

Penny stocks:

Penny stocks are just that shares priced in cents instead of dollars and usually traded in online exchanges.  Scammers will pump such stocks on message boards, blogs and e-mails. The tout you can buy shares for say a nickel and within days the stock will be selling for a quarter a share and you will have a five-fold return on your investment.

Once the securities are artificially pumped up by all the advertising, the scammers sell their own shares and take the money, leaving the investors with nothing when the price plummets back to the original purchase price or lower.

Cold calls:

CNN/Money warns not to befriend the stranger on the phone. Scammers often cold call their victims often pitching everything from gold coins to penny stocks. The scammers know how to build friendships by not being too aggressive in their sales pitches and calling back often.

Scammers are getting increasingly creative, CNN/Money says, latching on to whatever big theme is in the news. Some are bids for a charitable contribution to help victims of some natural disaster. Others might involve fraudsters claiming to have access to private pre-IPO shares of big companies about to go public.

The advice is to always verify that the person pitching financial investments or products is licensed, and to never rush into anything.