How Financial Scams Work, and How to Keep Yourself Safe No Matter Your Level of Wealth

In the late 1920s, an enterprising Bostonian started selling subdivisions in the sunny ‘burbs of Florida. Promising orange trees in the backyard and rolling waves out the front door, he sold plots – sometimes 23 an acre! – near bustling towns like Nettie. Unfortunately, the entrepreneur’s name was Charles Ponzi, and Nettie, like his other locales, was a work of lucrative fiction.

Scams have been around since money has been around. People find ways to circumvent laws, regulations and virus-protection software to leave town before anyone knows they – and the money – are gone.

Let’s look at some of the scams out there right now, and how you can guard yourself and your family from buying some of Ponzi’s beachfront property.

An Unlikely Statistic

First, let’s look at an unlikely statistic. As far as fraud goes, it’s well known that the elderly are targeted. One recent study found that suspicious activity reports made by elderly clients had quadrupled from 2013 to 2017. Taking advantage of perceived frailty or technology confusion is the oldest trick in a very old book.

But the curveball here is that more millennials report being scammed than any other age group. But they lose less per capita than elderly victims. Those in their 20s reported a median loss of $400, compared to $1,092 for those 80 and older.

Practically living online, especially in the COVID era, simply extends the surface area that scammers can come across. For example, the highest fraud rates for millennials are in online shopping, and they are slightly less likely to be targeted by phone scams like their parents and grandparents.

Answers to passwords and security questions can also be easier to find on social media accounts. Your birthday, your pet’s names, your favorite sports teams – all kinds of collateral information is available that savvy fraudsters can use to their advantage.

Fraud 2020

This year has left a lot of ducks sitting for financial scams. Disorienting news reports, the boredom of quarantine and generalized stress and paranoia have brought out the scammers with specific cons tailored just for this year.

  • Coronafinder Trojan Virus – This is a malware program that claims to show you who in your neighborhood tested positive. For a small fee, of course. They then take off with your credit card information and nothing happens.
  • Refinancing Scams – Fraudsters are capitalizing on the impulse a lot of us have to lower our monthly payments when we see the lower interest rates available.
  • COVID-19 Grants or Aid – You might get a Facebook message from someone claiming to be a government official asking you to pay an upfront fee and then they’ll send you a magical grant for COVID relief.

These are just a few examples, but the trend is clear: Scammers come out during vulnerable, transitional times. They take advantage of fear during a pandemic: They offer student loan relief and jobs to millennials; they offer phony health insurance and funeral prep to the elderly.

Information is Power

“All I need is your Social Security number…”

A telltale sign of the modern scheme is a ploy for information. A Nigerian prince who wants to share his windfall with you, a friend who was robbed on a vacation and needs you to wire them money, or maybe that tech support person who calls and just needs you to log in one more time – these are the modern digital cliches in fraud.

One of the classics in this sector is the phishing scheme. A fraudster will use a generic email sent to thousands of people to try to get just a few to respond with their critical information. The information can then be used to log into bank accounts or other forms of identity theft.

The evolved version of this, especially of concern for business owners and executives, is spear-phishing. This is a specifically-aimed campaign that uses personal/proprietary information to pull off the scheme.

One of the cautionary tales in spear-phishing is Ubiquiti, which was a victim in 2015 of a spear-phishing technique dubbed “whaling.” While their executive traveled globally and had limited communication with the home office, a fraudster jumped in and posed as the company leader, asking money to be wired to several locations. The total bill was $46.7 million, siphoned off over a matter of weeks.

Some Basic Coordinates on Preventing Fraud

There are commonsense reminders here like anywhere else: Don’t take candy (or offers for free stuff) from strangers, especially internet strangers. But chances are your assets are more complex, and the “strangers” who might pose a danger to you are more sophisticated. Let’s look at a few basics.

Keep it Clear

Make sure your financial manager uses a clearing firm. A custodian as your go-between helps you to make sure your investments are getting where they need to go and staying safe. Our firm uses TD Ameritrade and Fidelity, and you can get on their website as well as ours to make sure your finances are in order.

Bernie Madoff, the modern-day Ponzi, was able to run his long con in part because he didn’t use a clearing firm. The buck stopped with him, allowing him to fabricate statements and performance reports. An impartial third party is a vital check and balance, especially when large amounts of money are involved.

Private equity investments, for all their freedom and potential profit, are especially vulnerable to a Madoff-type scheme. Without the clearing firm to keep a watchful eye on all involved, there can be potentially fewer safeguards against fraud. As nice as it is to own equity in a business, it’s nicer to have watchdogs in place to make sure you actually do!

The Tough Go Tech

Unfortunately, many con artists are near tech geniuses, haunting the internet to find the serious cash in digital transactions. High net worth clients are investing in customized cybersecurity involving a team of experts and coverage.

One program, Starling, offers specific coverage for cybercrimes and fraud. They partner with a cybersecurity program that monitors internet activity through a VPN to watch for anomalous behavior and transactions.

With only the nascent legal culture to find and prosecute cybercrimes and fraud, today’s investors can’t be too careful. Some high net worth clients, dissatisfied with enforcement online, have gone as far as hiring private investigators to navigate this uncharted territory.

Privacy is Still Cool

“Social media has made privacy uncool,” observed comedian Pete Holmes, and scammers know this better than anyone. Showing a little more caution with what you put online, and also making sure your password life is separate from your personal life, can help your security immensely.  Educating kids and grandkids on this is also an important step.

Using a password manager or vault is another helpful measure that really should be standard operating practice in today’s world.

Scam Protection To-Do List

There are many fairly simple, practical measures you can take to guard against scams or if you feel you have been scammed. Here are a few:

  • Freeze your credit report – It’s fairly simple to freeze your credit report if you suspect fraud activity. The big three, Experian, Equifax and TransUnion, offer this complimentary service.
  • Report it – If you believe you are a victim of internet crime, you can report it to the Internet Crime Complaint Center (IC3) division of the FBI.
  • Two-step verification on accounts are a great idea whenever the option is offered.
  • VPN – Use a Virtual Private Network (VPN), especially when you send investment information or work on a public computer.
  • Something Phishy – Watch for emails out of nowhere asking for sensitive information, and which usually have misspellings or come from unfamiliar addresses.

Not on Your Own

If there’s anything 2020 has shown us, it’s that we’re not alone. We all worry about market dips, working remotely and itching under our masks together. People are looking out for each other and expressing solidarity in surprising ways.

Preventing fraud and recovering from its damage is a matter of finding professionals you can depend on. Your financial advisor can help you put together a plan to keep you safe and help you avoid risks that are unnecessary and expose you.

Set up an Appointment!

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