Friday, 27 September 2013

Type of Scams and How They Work

While building up our wealth and looking for alternative active/passive income streams, we need to be vigilant and do not fall into scams or traps that would drain away our hard-earned money.

The definition of greed is an excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth.  Fraudsters or scammers make use of people's greed for their scamming schemes.

When an investment looks too good to be true—it probably is.

Common types of scams are:

Boiler-Room scam, AKA "Cold Call"
- Scammers make repeated unsolicited calls offering the sale of shares in third party business, often in companies you have never heard of.
- Scammers may make use of high-pressure tactics, promise high returns with low risks but do not provide a lot of information about themselves or their investments.
- Scammers usually maintain websites to give consumers the impression that their operations are legitimate.
- Overseas boiler-room scams may make use of Singapore telephone numbers to create the impression that they are based in Singapore.

419 scam, also known as “African/Nigerian scam”
- Fraudsters send emails/letters/faxes/SMS claiming acquisition or inheritance of huge sum of money.
- They then seek help from victims to supply a foreign bank account number to transfer the money out of Africa (or any other country).
- They offer huge commission but victims are made to pay large sums of up-front payments as taxes or fees to transfer the "funds".

Employment scam AKA job scam
- Fraudsters posing as recruiters or employers offer attractive employment opportunities (including "Work-at-Home" jobs) which require the job seeker to pay them money in advance, usually under the guise of work visas, travel expenses or out-of-pocket expenses.
- These scams typically involve lucrative offers of employment in Europe, the Middle East or Africa with money demanded to be paid to an agency or travel agent for visas or travel costs.
- Fraudsters usually have official-looking websites and documentation.

Lottery scam
- Fraudsters send emails/faxes/mail/SMS or call the victims claiming that they have won prize money in overseas lottery.
- Fictitious documents such as lottery tickets might also be enclosed.
- Fraudsters may request for consumer's bank account number or personal particulars to facilitate the transfer of funds.
- Consumers are also asked to pay large sums of up-front payments as taxes or fees for administration and transference of funds.

Ponzi scam
- Fraudsters promise high returns to investors, often claiming their investments are low risk simultaneously.
- Fraudsters then use part of the money deposited by subsequent investors to pay dividend or interest to earlier investors.
- Investors are lured into believing the investment schemes are genuine and encourage their friends or relatives to participate.  Alternatively, they may decide to increase their own investment.
- Ultimately, the scheme collapses due to lack of number of new investors.

Pump and Dump scam
- A company may post a glowing press release about its new venture or profits. The company may then become an unwitting victim of a pump and dump scheme.
- Fraudsters may buy stocks of this company. Fraudsters then post stories on bulletin boards, blogs or forums on the attractiveness of the stock.  Often, there is no way to verify the authenticity of these posts.
- Investors may then rush in to buy the stock, resulting in the stock price of the company being pushed upwards.
- Fraudsters then sell their stocks at a profit. After they have sold their stocks for a profit, the stories cease and the stock price of the company falls.

- Fraudsters dupe victims into believing that blackened US currency notes can be used after being ‘washed’ by special chemicals, or some electronics gadgets are very expensive, but the victims could get them cheap (because of some reasons) and subsequently sell them off for profit.
- Victims are made to pay up-front payments to buy the special chemicals or electronics gadgets.

In conclusion, there would always be new scams and bogus investment opportunities designed with only one purpose: to get consumers to part with their money.  Consumers must be vigilant and should make sure that the persons they are dealing with are legitimate and authorized.

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