Notes

unit 8 lesson 2 fraud

Bait-and-Switch - The practice of baiting consumers with an advertised item, but then switching them to a higher-priced product when they come to the store.
1.The seller does not have the advertised item (and really doesn't intend to).
2.The seller does not have a reasonable quantity of the sales item on hand.
3.The advertised item is so inferior in quality that once the consumer arrives at the store he is quickly and easily talked into a more expensive item.
4.The seller receives additional commission or compensation if she doesn't sell the advertised item to the consumer.
5.There is an unreasonable delay in ordering the sale item, so that the consumer decides to buy a more expensive item.
6.The seller builds up the advertised product by unfairly criticizing the competition's product.
The best way to protect yourself from bait-and-switch is to resist sales pressure and don't buy the more expensive item.

•Boiler Room - A room set up with multiple telephone lines where seasoned operators try to scam hundreds of thousands of people across the country every day.
•The Federal Trade Commission (FTC) - An organization which works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid these practices.
•Phishing - An activity that involves Internet fraudsters who send spam or pop-up messages to “fish” for personal information (credit card numbers, bank account information, Social Security number, passwords, or other sensitive information) from unsuspecting victims. According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, phishers send an email or pop-up message that claims to be from a business or organization that you may deal with — for example, an Internet service provider (ISP), bank, online payment service, or even a government agency. The message may ask you to “update,” “validate,” or “confirm” your account information. Some phishing emails threaten a dire consequence if you don’t respond. The messages direct you to a website that looks just like a legitimate organization’s site. But it isn’t. It’s a bogus site whose sole purpose is to trick you into divulging your personal information so the operators can steal your identity and run up bills or commit crimes in your name.
•Pump And Dump Scam - It's common to see messages posted online that urge readers to buy a stock quickly or tell you to sell before the price goes down. Often the writers will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be insiders or paid promoters who stand to gain by selling their shares after the stock price is pumped up by gullible investors. Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose their money. Fraudsters frequently use this ploy with small, thinly-traded companies because it's easier to manipulate a stock when there's little or no information available about the company.
•Pyramid Scheme - A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to others. The difference between a pyramid scheme and a legitimate multi-level marketing organization is that the pyramid scheme does not sell a legitimate product or service. These schemes are illegal and, if they involve the use of the U.S. mail, a federal criminal offense.
-Off shore fraud-At one time, off-shore schemes targeting U.S. investors cost a great deal of money and were difficult to carry out. Conflicting time zones, differing currencies, and the high costs of international telephone calls and overnight mailings made it difficult for fraudsters to prey on U.S. residents. But the Internet has removed those obstacles. Be extra careful when considering any investment opportunity that comes from another country, because it's difficult for U.S. law enforcement agencies to investigate and prosecute foreign frauds.
-risk free fraud-"Exciting, Low-Risk Investment Opportunities" to participate in exotic-sounding investments – such as wireless cable projects, prime bank securities, and eel farms – have been offered through the Internet. But no investment is risk-free. And sometimes the investment products touted do not even exist, they're merely scams. Be wary of opportunities that promise spectacular profits or "guaranteed" returns. If the deal sounds too good to be true, it probably is.

One example of a pyramid scheme is a chain letter that asks you to send money to the person at the bottom of the list, tells you to put your name and address at the top of the list, and then requests that you send the list to six of your friends. You can see in the picture that pyramid schemes cannot work because they quickly involve large numbers of people. Don't get involved with this! If you receive a chain letter, tear it up (or delete the e-mail letter from your computer).
-•Advance fee loans may be offered to people who have credit problems by companies that claim they can guarantee a loan if the consumer pays a fee in advance. The fee may be several hundred dollars, and it is illegal to ask for this fee before the service has been delivered.
•Spam - The abuse of electronic messaging systems to send unsolicited, undesired bulk messages.
•Sucker Lists - Lists used by telemarketing operators that contain information about people who have responded to previous telemarketing solicitations, like their name, phone number, and how much money they spent.
•Telemarketing - A method of direct marketing in which a salesperson uses the telephone to solicit prospective customers for products or services.
•Telephone Cramming - When companies add charges to your telephone bill for optional services you never agreed to, such as voice mail.
•Telephone Slamming - A practice that involves telemarketers switching your long distance, local toll or local telephone company without your permission.

Telephone Scams

-cold calls
Scammers may get your number from a telephone directory, a mailing list or what fraudsters call a "sucker list." Sucker lists contain information about people who have responded to previous telemarketing solicitations, like their name, phone number, and how much money they spent. The lists are bought and sold by promoters. They are invaluable to scam artists, who believe that consumers who have been deceived once are vulnerable to additional scams.

-direct mail
You may get a letter or postcard saying you've won a prize or a contest. This is often a front for a scam. The instructions tell you to respond to the promoter with certain information. If you do, you'll be called by a fraudster who may use persuasive sales pitches, scare tactics, and false claims to deceive you and take your money.

-Broadcast and Print Advertisements
You may place a call in response to a television, newspaper, or magazine advertisement. The fact that you initiate the call doesn't mean the business is legitimate, or that you should be less cautious about buying or investing on the phone.

THE HOOKS

-Prize offers
You usually have to do something to receive your "free" prize, like attend a sales presentation, buy something, pay a fee, or give out a credit card number. But the prizes are worthless or overpriced.

-Travel Packages
"Free" or "low cost" vacations can end up costing a bundle in hidden costs. You may pay a high price for some part of the package — like hotel or airfare. The total cost may run two to three times more than what you'd expect to pay, or what you were led to believe. Some "bargain" vacations never happen at all.

-Investments
People lose millions of dollars each year to "get rich quick" schemes that promise high returns with little or no risk. These can include movie or cable television production deals, Internet gambling, rare coins, art, or other "investment opportunities." The schemes vary, but one thing is consistent: Unscrupulous promoters rely on the fact that investing can be complicated, and many people don't research the investment process.

-Charities
Con artists often push you for an immediate gift, but won't send written information so you can check out the “charity” they represent. They also may try to confuse you by using names that sound like well-known charitable organizations or even law enforcement agencies.

To Report a Scam

Fight fraud by reporting scam artists to the Federal Trade Commission and your State’s Attorney General. The Telemarketing Sales Rule gives these local law enforcement officers the power to prosecute fraudulent telemarketers who operate across state lines.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit http://www.ftc.gov This link will open in a new window or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

AVOIDING THEM
•Don’t be pressured to make an immediate decision.
•Don’t give your credit card, checking account, or Social Security numbers to unknown callers.
•Don’t buy something merely because you’ll get a “free gift.”
•Be cautious of statements that you’ve won a prize — particularly if the caller says you must send money to claim it.
•Don’t agree to any offer where you have to pay a registration or shipping fee to receive a “prize.”
•Get all information in writing before you agree to buy.
•Check out a charity before you give. Ask how much of your donation actually goes to the charity. Ask that written information be sent to you so you can make an informed giving decision.
•Don’t invest your money with an unknown caller who insists you make up your mind immediately.
•If the offer is an investment, check with your state securities regulator to see if it’s properly registered.
•Don’t send cash by messenger or overnight mail. If you use cash rather than a credit card in the transaction, you may lose your right to dispute fraudulent charges.
•Make sure you know the per minute charge for any 900 number call you make.
•Check out unsolicited offers with the Better Business Bureau, local consumer protection agency, or State Attorney General’s office before you agree to send money.
•Beware of offers to “help” you recover money you may have lost. Be wary of callers saying they are law enforcement officers who will help you get your money back “for a fee.”

INTERNET AVOIDNG SCAMS
The FTC suggests these tips to help you avoid getting hooked by a phishing scam:
•If you get an email or pop-up message that asks for personal or financial information, do not reply. And don’t click on the link in the message, either. Legitimate companies don’t ask for this information via email. If you are concerned about your account, contact the organization mentioned in the email using a telephone number you know to be genuine, or open a new Internet browser session and type in the company’s correct Web address yourself. In any case, don’t cut and paste the link from the message into your Internet browser — phishers can make links look like they go to one place, but in actuality send you to a different site.
•Area codes can mislead. Some scammers send an email that appears to be from a legitimate business and ask you to call a phone number to update your account or access a “refund.” Because they use Voice Over Internet Protocol technology, the area code you call does not reflect where the scammers really are. If you need to reach an organization you do business with, call the number on your financial statements or on the back of your credit card. In any case, delete random emails that ask you to confirm or divulge your financial information.
•Use anti-virus and anti-spyware software, as well as a firewall, and update them all regularly. Some phishing emails contain software that can harm your computer or track your activities on the Internet without your knowledge.

A firewall helps make you invisible on the Internet and blocks all communications from unauthorized sources. It’s especially important to run a firewall if you have a broadband connection. Operating systems (like Windows or Linux) or browsers (like Internet Explorer or Netscape) also may offer free software “patches” to close holes in the system that hackers or phishers could exploit.
•Don’t email personal or financial information. Email is not a secure method of transmitting personal information. If you initiate a transaction and want to provide your personal or financial information through an organization’s website, look for indicators that the site is secure, like a lock icon on the browser’s status bar or a URL for a website that begins “https:” (the “s” stands for “secure”). Unfortunately, no indicator is foolproof; some phishers have forged security icons.
•Review credit card and bank account statements as soon as you receive them to check for unauthorized charges. If your statement is late by more than a couple of days, call your credit card company or bank to confirm your billing address and account balances.
•Be cautious about opening any attachment or downloading any files from emails you receive, regardless of who sent them. These files can contain viruses or other software that can weaken your computer’s security.
•Forward spam that is phishing for information to the company, bank, or organization impersonated in the phishing email. Most organizations have information on their websites about where to report problems.
•If you believe you’ve been scammed, file your complaint at with the FTC. Victims of phishing can become victims of identity theft. While you can’t entirely control whether you will become a victim of identity theft, you can take some steps to minimize your risk. If an identity thief is opening credit accounts in your name, these new accounts are likely to show up on your credit report. You may catch an incident early if you order a free copy of your credit report periodically from any of the three major credit bureaus. See www.annualcreditreport.com This link will open in a new window for details on ordering a free annual credit report.