Elliott Greenblott | AARP Fraud Watch: Here are a scammer's top five tactics


Maybe you are a bit like me: A seemingly great opportunity appears and suddenly I become obsessed and I lose my ability to apply logic and reason. (For me, it's backstage passes to Paul McCartney.)

In the world of con artists, it is called putting you under the "ether," a heightened state of emotion or anxiety. They understand that a rational individual will not willingly part with hard-earned cash when dealing with a total stranger. They know it's necessary to get potential victims under the ether.

Briefly, here are the five tactics they use to do it.

First, the lure of "phantom riches": The prospect of easy money can be effective in luring normally guarded individuals.

Quite often, this is coupled with "source credibility": The appearance of authority, credentials or experience can in itself be persuasive.

A third tactic utilizes "social consensus": A feeling everybody is getting involved.

Con artists also use "reciprocity": Where something is done for you and you feel obligated to respond. It is seen in comments, such as "I'll forgo my commission if you act now."

Finally, "scarcity" is a tactic, often using the ploy that the offer will soon be withdrawn or that only a set number of offers can be made.

Three scams

We see most of these tactics in the three scams I address today: Pump and dump, advance fee fraud, and offshore scams.

Pump and dump schemes have the con artists buying large numbers of shares of a cheap stock and using the rising value of the investment to lure others to invest. Once the stock price rises, the scammer sells his holdings and the victim ends up losing.

In an advance fee fraud, the victim wants to recoup a bad investment. The scammer agrees to help out, and — for a fee — will arrange for the resale of the poor decision. Once the fee is paid, the money and the scammer disappear and the investor sees nothing.

Finally, in the case of off-shore investment scams, the targets are individuals seeking the advantage of investing outside the restrictions of the U.S. government and taxation. Not only do the scammers utilize poor quality investments, but the investors lose any protection normally afforded to them by regulatory agencies in the United States.

Watch for red flags

Investors need to recognize the red flags and understand that there needs to be suspicion of anyone or investment product guaranteeing a high level of return, especially when no risk is mentioned. Combine this with a particularly pushy agent or salesperson and it becomes a recipe for disaster.

Many scams involve unlicensed agents, unregistered securities, and missing or unavailable documentation. Steer away from these.

Savvy investors should be wary of any investment that allegedly displays consistent returns, regardless of market trends or conditions. Complex investment strategies are also red flags. You need to clearly understand the process and nature of your investments.

Our last red flag appears with unauthorized trading, inconsistencies with your investment instructions, and the presence unrecognized custodians or third-party transfer agents. Be particularly concerned if your account adviser also holds the role of custodian of your assets.

Background checks

Protecting yourself means following generally accepted practices that fall into two categories – vetting the investment advisers or firms and researching the investments. Background checks of agents and firms can be accomplished by BrokerCheck at finra.org/brokercheck or calling (800) 289-9999. You can also use the tools found at the Securities and Exchange Commission website (sec.gov/investor/brokers.htm) or contact your state securities regulator who is listed at nasaa.org.

In researching the suggested investments, ask the agent to provide you with the appropriate registration information and name of the regulatory agency. To find out if the product is registered, you can also visit the SEC EDGAR database at sec.gov/edgar.htm. (It is concerning to me when someone spends more time researching the purchase of a toaster than retirement investments.)

Remember, con artists are equal opportunity scammers: They want your money, regardless of the amount.

Elliott Greenblott is a coordinator for the AARP Fraud Watch Network and writes this biweekly column. If you suspect that you may be a victim of a scam, call the AARP Fraud Watch Network hotline at 877-908-3360 or the Massachusetts Attorney General's Consumer Protection Division at (617) 727-8400.


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