I interviewed my 20-something daughters as part of a project on money milestones. When I asked what the toughest thing about managing their money was, I was struck by something my youngest said.
We assume scams mostly affect older adults. But a look at 2021 consumer complaints found that younger adults were 34 percent more likely than people 60 and older to report losing money to fraud, according to data collected by the Federal Trade Commission. Younger adults were more than four times more likely than older adults to report investment scam losses, the agency reported.
“When you’re an adult, I feel like everything is just in the wind,” my 22-year-old, Jillian, said. “And plus, there’s a lot of stress in terms of, like, people constantly trying to scam you.”
She and her 27-year-old sister confided that adulting could mean losing the protection of your parents.
“I just feel like there are a lot of things about being an adult where there’s like no safety net,” Jillian said. “I don’t mind doing my own laundry and cooking my own food. I just don’t like not knowing … when I’m being scammed. Is this person going to do me dirty, and like, can I call mom and dad to fix it for me?”
Adult life often comes with the realization that people will prey on your desire to grow your money. It’s one of the reasons I’ve decided to devote my column to an occasional series on money basics called Financial Adulting 101.
I thought about the discussion with my daughters as I read about an alleged $500 million Ponzi scheme that, according to the Securities and Exchange Commission, preyed on Mormons.
The regulator alleges that a Las Vegas lawyer hooked folks by telling them their investments would be used to advance loans to people who had reached personal injury settlements with insurance companies but didn’t want to wait for their payments.
Some investors were promised a return of at least 12.5 percent every 90 days, or an annualized rate of 50 percent, according to the SEC complaint. Investors were supposed to make money on the premiums the slip-and-fall clients paid to get their money sooner.
But the SEC says no such settlements existed. Instead, existing investors were paid with money from new clients — a classic Ponzi scheme. The rest of the money raised went to “fund lavish lifestyles, including purchasing luxury homes and properties, a private jet, ATVs, boats, and numerous luxury cars for themselves and their relatives,” the SEC said in its complaint.
This case is an opportunity to reiterate the signs of a scam. Here are seven common red flags:
1. The promised return is extraordinary
Just stop to think. How can investment promoters guarantee a high return when mainstream financial companies don’t?
Can some investments get extraordinary returns? Sure, but not without risk and the potential to lose all your money.
It’s when you are promised a specific and consistent return that you need to bail from the deal.
2. A high return is pitched as low risk
This is a lowdown dirty lie. All the time, every time.
Investors in the Las Vegas case were told their risk was almost zero, according to the SEC.
A high return always means the investment is risky. Just remember: Risk and reward are equal partners.
If the risk is low, the return is typically low. If the return is potentially high, the risk is high.
If anyone is promising a low-risk investment with a return that is far above recent average returns in more traditional investments, someone is trying to scam you.
3. The investment details are a secret
The deal is too covert to allow you to investigate.
In the case involving the Las Vegas attorney, investors were told the law firm had relationships with personal injury attorneys whose clients had settlements with insurance companies. But the investment agreements prohibited signers from contacting any parties related to the settlement without written consent, the SEC complaint said. But even with that stipulation, investors still should have been able to check public records to confirm the claims were legit.
Some investors did contact the attorneys named in their agreements only to discover the cases were fake, according to the SEC.
If you aren’t permitted or are discouraged from verifying the details of a deal, it’s a scam.
Calling your state securities regulator will save you a lot of money and heartache. Find out if the person selling the security is licensed in your state. You can find your state regulator by going to the website of the North American Securities Administrators Association (nasaa.org).
4. The investment is being promoted by people you trust
Con artists are masterful in gaining the trust of unsuspecting investors, sometimes even getting on their knees and praying with their targets to win them over.
I reported on a Georgia man — a preacher, no less — who was convicted of stealing nearly $9 million from 1,600 small, Black churches and other nonprofit groups by promising them big returns on small investments.
Con artists have long understood and taken advantage of inexperienced investors because they know these are folks who don’t trust their own instincts or have much confidence in their investment knowledge. So, crooks recruit people who tend to inspire trust to help promote their scheme.
This type of scamming is called affinity fraud.
The word “con” in con man means “confidence.” Con artists gain people’s confidence by affiliating with or infiltrating religious organizations or circles of friends and family members you might not question.
5. You’re offered a bonus to sign up friends
If recruiting other investors is key, you could unwittingly become part of a scam. Who better to drag others into the fraud than a friendly face?
6. Testimonials about big payouts
Scammers love when early investors brag about their returns. It adds legitimacy to the swindle.
In the most successful scams, many participants get the promised payout.
But don’t let the stories of friends and family who have had big payouts be the only reason you invest.
A reality TV couple wanted to ‘bless’ Black people suffering financially. The FTC says it was a pyramid scheme.
7. The promoter gets angry at too many questions
I once went to an investment seminar that turned out to be shady. I kept peppering the promoter with questions, and she got angry and asked, “Would your friend introduce you to anything that is crazy?”
“Yes, ma’am, she could,” I shot back.
If the person introducing you to the scheme hasn’t done her due diligence, you both can be hoodwinked.
The SEC said one promoter in its case reportedly “reacted angrily and dismissively when investors asked questions about the specifics of the purported investments.”
Huge crimson-colored red flag.
If you are ever made to feel stupid or are shut down from asking questions about an investment opportunity, you are most definitely about to be conned.
B.O.M. — The best of Michelle Singletary on personal finance
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