Fraud Alert
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The following information is provided to help you identify
some of the more common types of fraudulent practices and take
appropriate action to prevent or minimize losses. If you suspect
that someone is committing a fraud, you should notify law enforcement. |
What is an Advance
Fee Scheme?
An advance fee scheme occurs when the victim pays money to someone
in anticipation of receiving something of greater value, such
as a loan, contract, investment, or gift, and then receives little
or nothing in return.
The variety of advance fee schemes is limited only by the imagination
of the con artists who offer them. They may involve the sale of
products or services, the offering of investments, lottery winnings,
"found money," or a myriad of other "opportunities."
Clever con artists will offer to find financing arrangements for
their clients who pay a "finder's fee" in advance. They
require their clients to sign contracts in which they agree to
pay the fee when they are introduced to the financing source.
Victims often learn that they are ineligible for financing only
after they have paid the "finder" according to the contract.
Such agreements may be legal unless it can be shown that the "finder"
never had the intention or the ability to provide financing for
the victims.
Some Tips To Help You Avoid These Frauds:
1. If the offer of an "opportunity" appears too good
to be true, it probably is.
2. Know who you are dealing with. If you have not heard of a person
or company that you intend to do business with, learn more about
them. Depending on the amount of money that you intend to spend,
you may want to visit the business location, check with the Better
Business Bureau, or consult with your bank, an attorney, or the
police.
3. Follow common business practice. For example, legitimate business
is rarely conducted in cash on a street corner.
4. Make sure you fully understand any business agreement that
you enter into. If the terms are complex, have them reviewed by
a competent attorney.
5. Be wary of businesses that operate out of post office boxes
or mail drops and do not have a street address, or of dealing
with persons who do not have a direct telephone line, who are
never "in" when you call, but always return your call
later.
6. Be wary of business deals that require you to sign nondisclosure
or noncircumvention agreements that are designed to prevent you
from independently verifying the bona fides of the people with
whom you intend to do business. Con artists often use noncircumvention
agreements to threaten their victims with civil suit if they report
their losses to law enforcement.
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Common Health
Insurance Frauds:
Medical Equipment Fraud: Equipment manufacturers offer "free"
products to individuals. Insurers are then charged for products
that were not needed and/or may not have been delivered.
"Rolling Lab" Schemes: Unnecessary and sometimes fake
tests are given to individuals at health clubs, retirement homes,
or shopping malls and billed to insurance companies or Medicare.
Services Not Performed: Customers or providers bill insurers for
services never rendered by changing bills or submitting fake ones.
Medicare Fraud: Medicare fraud can take the form of any of the
health insurance frauds described above. Senior citizens are frequent
targets of Medicare schemes, especially by medical equipment manufacturers
who offer seniors free medical products in exchange for their
Medicare numbers. Because a physician has to sign a form certifying
that equipment or testing is needed before Medicare pays for it,
con artists fake signatures or bribe corrupt doctors to sign the
forms. Once a signature is in place, the manufacturers bill Medicare
for merchandise or service that wasn't needed or in some cases
wasn't ordered.
Some Tips To Help You Avoid These Frauds:
1. Never sign blank insurance claim forms.
2. Never give blanket authorization to a medical provider to bill
for services rendered.
3. Ask your medical providers what they will charge and what you
will be expected to pay out-of-pocket.
4. Carefully review your insurer's explanation of benefits statement.
Call your insurer and provider if you have questions.
5. Do not do business with door-to-door or telephone salespeople
who tell you that services of medical equipment are free.
6. Give your insurance/Medicare identification only to those who
have provided you with medical services.
7. Keep accurate records of all health care appointments.
8. Know if your physician ordered equipment for you.
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What Is Identity
Theft?
Identity Theft occurs when someone assumes your identity
to perform a fraud or other criminal act. Criminals can get the
information they need to assume your identity from a variety of
sources, such as the theft of your wallet, your trash, or from
credit or bank information. They may even approach you directly
in person, by telephone, or on the Internet and ask you for the
information.
The sources of information about you are so numerous that you
cannot prevent the theft of your identity. But you can minimize
your risk of loss by following a few simple hints:
Some Tips To Help You Avoid These Frauds:
1. Never throw away ATM receipts, credit statements, credit cards,
or bank statements in a usable form.
2. Never give your credit card number over the telephone unless
you make the call.
3. Reconcile your bank account monthly and notify your bank of
discrepancies immediately.
4. Keep a list of telephone numbers to call to report the loss
or theft of your wallet, credit cards, etc.
5. Report unauthorized financial transactions to your bank, credit
card company, and the police as soon as you detect them.
6. Review a copy of your credit report at least once each year.
Notify the credit bureau in writing of any questionable entries
and follow through until they are explained or removed.
7. If your identity has been assumed, ask the credit bureau to
print a statement to that effect in your credit report.
8. If you know of anyone who receives mail from credit card companies
or banks in the names of others, report it to local or federal
law enforcement authorities.
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What is a Letter of Credit
Fraud?
Legitimate letters of credit are issued by banks to ensure payment
for goods shipped in connection with international trade. Payment
on a letter of credit generally requires that the paying bank
receive documentation certifying that the goods ordered have been
shipped and are en route to their intended destination.
Legitimate letters of credit are never sold or offered as investments.
Letter of credit frauds are often attempted against banks by providing
false documentation to show that goods were shipped when, in fact,
no goods or inferior goods were shipped.
Other letter of credit frauds occur when con artists offer a "letter
of credit" or "bank guarantee" as an investment
wherein the investor is promised huge interest rates on the order
of 100 to 300 percent annually. Such investment "opportunities"
simply do not exist. (See Prime Bank Notes for additional information.)
Some Tips To Help You Avoid These Frauds:
1. If an "opportunity" appears too good to be true,
it probably is.
2. Do not invest in anything unless you understand the deal. Con
artists rely on complex transactions and faulty logic to "explain"
fraudulent investment schemes.
3. Do not invest or attempt to "purchase" a "Letter
of Credit." Such investments simply do not exist.
4. Be wary of any investment that offers the promise of extremely
high yields.
5. Independently verify the terms of any investment that you intend
to make, including the parties involved and the nature of the
investment.
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What is a Nigerian Letter
or "419" Fraud?
Nigerian letter, fax, and e-mail frauds combine the threat of impersonation fraud
with a variation of an advance fee scheme in which a letter, mailed
from Nigeria, offers the recipient the "opportunity"
to share in a percentage of millions of dollars that the author,
a self-proclaimed government official, is trying to transfer illegally
out of Nigeria. The recipient is encouraged to send information
to the author, such as blank letterhead stationary, bank name
and account numbers and other identifying information using a
facsimile number provided in the letter. Some of these letters
have also been received via E-mail through the Internet. The scheme
relies on convincing a willing victim, who has demonstrated a
"propensity for larceny" by responding to the invitation,
to send money to the author of the letter in Nigeria in several
installments of increasing amounts for a variety of reasons. Payment
of taxes, bribes to government officials, and legal fees are often
described in great detail with the promise that all expenses will
be reimbursed as soon as the funds are spirited out of Nigeria.
In actuality, the millions of dollars do not exist and the victim
eventually ends up with nothing but loss. Once the victim stops
sending money, the perpetrators have been known to use the personal
information and checks that they received to impersonate the victim,
draining bank accounts and credit card balances until the victim's
assets are taken in their entirety. While such an invitation impresses
most law-abiding citizens as a laughable hoax, millions of dollars
in losses are caused by these schemes annually. Some victims have
been lured to Nigeria, where they have been imprisoned against
their will, in addition to losing large sums of money. The Nigerian
government is not sympathetic to victims of these schemes, since
the victim actually conspires to remove funds from Nigeria in
a manner that is contrary to Nigerian law. The schemes themselves
violate section 419 of the Nigerian criminal code, hence the label
"419 fraud."
Some Tips To Help You Avoid These Frauds:
1. If you receive a letter from Nigeria asking you to send personal
or banking information, do not reply in any manner. Send the letter
to the U.S. Secret Service or the FBI.
2. If you know someone who is corresponding in one of these schemes,
encourage that person to contact the FBI or the U.S. Secret Service
as soon as possible.
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What is a Prime Bank Note?
International fraud artists have invented an investment scheme
that offers extremely high yields in a relatively short period
of time. In this scheme, they purport to have access to "bank
guarantees" which they can buy at a discount and sell at
a premium. By reselling the "bank guarantees" several
times, they claim to be able to produce exceptional returns on
investment. For example, if $10 million worth of "bank guarantees"
can be sold at a two percent profit on ten separate occasions,
or "traunches," the seller would receive a 20 percent
profit. Such a scheme is often referred to as a "roll program."
To make their schemes more enticing, con artists often refer to
the "guarantees" as being issued by the world's "Prime
Banks," hence the term "Prime Bank Guarantees."
Other official sounding terms are also used such as "Prime
Bank Notes" and "Prime Bank Debentures." Legal
documents associated with such schemes often require the victim
to enter into nondisclosure and noncircumvention agreements, offer
returns on investment in "a year and a day", and claim
to use forms required by the International Chamber of Commerce
(ICC). In fact, the ICC has issued a warning to all potential
investors that no such investments exist.
The purpose of these frauds is generally to encourage the victim
to send money to a foreign bank where it is eventually transferred
to an off-shore account that is in the control of the con artist.
From there, the victim's money is used for the perpetrator's personal
expenses or is laundered in an effort to make it disappear.
While foreign banks use instruments called "bank guarantees"
in the same manner that U.S. banks use letters of credit to insure
payment for goods in international trade, such bank guarantees
are never traded or sold on any kind of market.
Some Tips To Help You Avoid These Frauds:
1. Think before you invest in anything. Be wary of an investment
in any scheme, referred to as a "roll program," that
offers unusually high yields by buying and selling anything issued
by "Prime Banks."
2. As with any investment, perform due diligence. Independently
verify the identity of the people involved, the veracity of the
deal, and the existence of the security in which you plan to invest.
3. Be wary of business deals that require nondisclosure or noncircumvention
agreements that are designed to prevent you from independently
verifying information about the investment.
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What is a "Ponzi"
Scheme?
A Ponzi scheme is essentially an investment fraud wherein the
operator promises high financial returns or dividends that are
not available through traditional investments. Instead of investing
victims' funds, the operator pays "dividends" to initial
investors using the principle amounts "invested" by
subsequent investors. The scheme generally falls apart when the
operator flees with all of the proceeds, or when a sufficient
number of new investors cannot be found to allow the continued
payment of "dividends."
This type of scheme is named after Charles Ponzi of Boston, Massachusetts,
who operated an extremely attractive investment scheme in which
he guaranteed investors a 50 percent return on their investment
in postal coupons. Although he was able to pay his initial investors,
the scheme dissolved when he was unable to pay investors who entered
the scheme later.
Some Tips To Help You Avoid These Frauds:
1. As with all investments, exercise due diligence in selecting
investments and the people with whom you invest.
2. Make sure you fully understand the investment before you invest
your money.
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What is a Pyramid Scheme?
Pyramid schemes, also referred to as franchise fraud, or chain
referral schemes, are marketing and investment frauds in which
an individual is offered a distributorship or franchise to market
a particular product. The real profit is earned, not by the sale
of the product, but by the sale of new distributorships. Emphasis
on selling franchises rather than the product eventually leads
to a point where the supply of potential investors is exhausted
and the pyramid collapses. At the heart of each pyramid scheme
there is typically a representation that new participants can
recoup their original investments by inducing two or more prospects
to make the same investment. Promoters fail to tell prospective
participants that this is mathematically impossible for everyone
to do, since some participants drop out, while others recoup their
original investments and then drop out. The country of Albania
recently experienced the collapse of pyramid investment schemes
that promised extremely high yields on investments. Public outcry
resulting from widespread losses by common citizens led to internal
strife and the attempted overthrow of the government.
Some Tips To Help You Avoid These Frauds:
1. Be wary of "opportunities" to invest your money in
franchises or investments that require you to bring in subsequent
investors to increase your profit or recoup your initial investment.
2. Independently verify the legitimacy of any franchise or investment
before you invest.
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