SCAMS AND SCHEMES

Utah is the fraud capital of the United States, due to our trusting natures and belief in the goodness of people.

In Utah, it is illegal to…

Indicate a warranty that does not actually exist

Say that repairs are necessary when they are not or say that repairs have been made when they haven’t

Tell a customer that he/she is a winner of a contest or that he/she has been especially selected to receive a bargain or discount when it is not true

Pyramid Schemes

An unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.

“Airplane Game”

Each of the eight passengers pay a sum to join the scheme. The sum goes to the captain who then leaves, with everyone remaining moving up one tier. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom three tiers lose their money if the scheme collapses.

Multi-Level Marketing

The sales force is compensated not only for sales they generate, but also for the sales of other salespeople that they recruit

Many pyramid schemes attempt to present themselves as legitimate MLM businesses.

Many courts, and portions of the public, assert that all MLMs are essentially pyramid schemes even if they are legal.

King of Queens

https://www.youtube.com/watch?v=hh207GlS02U

How it Works

You “buy in” with a donation to the person who recruits you and then recruit more people.

As you collect more recruits, you move up the Pyramid—and are promised a substantial lump sum once you reach the peak.

Why it Works

People are deceived into believing that by giving money, they will make more money; however, no wealth has been created, no product has been sold, no investment has been made, and no service has been provided.

A few people make money, but the majority of them lose it all.

Things You Should Know About Pyramid Schemes

1. They are illegal. There is a real risk that any pyramid operation will be closed down by police and the participants subject to fines and possible arrest.

Things You Should Know About Pyramid Schemes

2. They are fraudulent. Participants in a pyramid scheme are deceiving those they recruit.

Things You Should Know About Pyramid Schemes

3. They are losers. Pyramiding is based on simple mathematics: many losers pay a few winners.

90% of people who invest in a pyramid scheme end up losing their money

In order for everyone in a pyramid scheme to profit, there would have to be a never-ending supply of potential (and willing) participants.

In reality, the supply of participants is limited and each new level of participants has less chance of recruiting others and a greater chance of losing money.

Ponzi Scheme

A fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.

Similar to a pyramid scheme, except all profits centralize around one operator.

Charles Ponzi He didn’t create the first

Ponzi Scheme, but it is named after him

1919-1920 International Reply

Coupons (IRCs)

How a Ponzi Scheme Works

Bernie Madoff Highly respected, well-

established and esteemed financial expert

His promise of returns wasn’t unbelievable

Admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S. history

He stole approximately $65 billion over two decades

Affinity Fraud Investment scams that prey upon members of

identifiable groups, such as religious or ethnic communities, the elderly, or professional groups.

Fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile.

A 2012 article reports that Utah is believed to have the highest per-capita rate in the U.S. due to about two-thirds of the state’s residents being members of the LDS church.

Authorities estimate affinity fraud cost Utahans an estimated $1.4 billion in 2010 alone.

Other Common Scams

Nigerian Scam: A deposed prince from Nigeria has millions of dollars that he wants to give you…but he needs your bank account information first.

“Free Lunch” Invitation to free luncheons where they pitch fraudulent investments, promising triple-digit returns or advertising investments that don’t exist

They do something nice for you so you want to give back.

You won the lottery! That you never bought a ticket for…

Often a lottery abroad, like Ireland But first, you have to pay hundreds of

dollars in fees

Penny Stocks Scammers advertise stocks that are

super cheap Once the securities are artificially

pumped up, the scammers sell their shares their stocks and the price plummets.

Cold Calls Scammers call you on the phone to get

you to invest money They know how to build friendships over

the phone

http://abc30.com/business/top-10-scams-of-2014-from-the-bbb/466928/

How to Spot a Scam

Determine if you feel the investment seems “too good to be true”“once in a lifetime opportunity”“chance to get in on the ground floor”

Check with the Securities and Exchange Commission (SEC) to see if it’s a registered investment.

How to Spot a Scam Analyze the prospects

Companies must provide potential and existing clients with details of how and where the money will be invested

Make sure returns have been verified by a neutral third party

Ask about the exit strategy before you invest money.It should raise a red flag is there are a lot of

complicated parameters regarding how you can get your money out.

CBS Marketplace—Easy Money

https://www.youtube.com/watch?v=xc-CyhivbKg