“Who is going to believe a con artist? Everyone, if she is good.”
— Andy Griffith

Financial fraudsters are getting smarter, and their tools (like Artificial Intelligence) are getting better. So says a recent government policy report from Charles Schwab.

My previous columns have focused on how to grow your investments. But it seems just as important to talk about how to keep your hard-earned assets.

In today’s globally interconnected world, fraud and scams are all too common. And anyone — even the financially savvy — can become a victim.

The Federal Trade Commission noted 3.7 million fraud and identity theft reports, and $8.8 billion is fraud losses in 2022.

Seniors Are Prime Targets

Yet we know that people are not reporting every time they are victimized, so these numbers are likely on the low side of reality.

And the FTC reports that while younger individuals (ages 30-39) account for most of the reports, they only account for about $1.3 billion in losses, while seniors (ages 60 and older) have fewer reports but much larger losses of more than $3 billion in 2022.

And 2023 numbers are expected to be even worse.

Why are senior losses so much greater? Because they make a better target for scammers.

As notorious bank robber Willie Sutton said when asked why he robbed banks, “because that’s where the money is.” The combination of more money and less tech awareness make seniors a big target. But everyone is at risk.

Phishing and Online Scams

Online “phishing” scams are perhaps the most frequent tools used by crooks. You get an email or text, some with remarkably realistic logos and organization names with what can be a pretty convincing story — and an urgent request for you to call, click a link or hit a button.

Just one click can make it a very bad day for you.

Older clients are often targeted by tech support or customer service scams. I’ve had calls/texts supposedly from Microsoft, our electric utility and even law enforcement with some urgent matter.

Scammers typically contact the victim and convince them they need to “fix something on their computer,” their power is going to be turned off, or even that there’s an arrest warrant out for them.

You need to pay right away, or click on a link right away that gives scammers access to your computer where they can install malware or even gain full remote access to take what they want.

Or you get a call from someone who kind of sounds like a relative or good friend, who is in trouble, and needs cash sent right away or else something bad will happen to them.

Don’t get too smug even if you’re a younger/tech-savvy person. The development of AI is going to make these scams even more realistic, and a bigger risk to all of us.

Social Media’s Role

The Securities and Exchange Commission issued an investor alert warning about social media and investment fraud.

Investors increasingly rely on social media for lots of purchases, including investments. Social media allow fraudsters to disseminate false information quickly and anonymously, or even while pretending to be someone else.

The SEC warns that “social media may convey false impressions of consensus or legitimacy, making it look like large numbers of people are buying an investment while this is not the case.”

The alert goes on to say, “fraudsters may use social media to lure investors into a variety of schemes, ‘crypto’ investment scams, romance scams, market manipulation schemes, and community-based investment fraud.”

Scammers may impersonate legitimate banks, brokerage firms or investment advisers — with logos and websites that look very real. The SEC advises looking for slight variations/errors in the sender’s account name, profile, email address, screen name, etc.

Classic Con Artistry

But some of the biggest and well-known scams are done face-to-face. Many are Ponzi schemes, named after Charles Ponzi, an Italian con artist who in the 1920s promised investors a 50% return in 45 days.

His scam ran for more than a year and reportedly cost his “investors” more than $20 million.

The more recent example was Bernie Madoff, the admitted mastermind of the largest known Ponzi scheme that amounted to an estimated $65 million.

Madoff swindled his family, friends, plenty of high net-worth folks, and even some institutional investors.

Examples come close to home with the conviction of Brett Lovett as reported in Noozhawk earlier this year.

Lovett was convicted on 29 felony counts, including engaging in fraudulent securities schemes, theft from an elder or dependent adult, grand theft and money laundering.

Many of the crimes were committed against older members of his own Carpinteria church.

And on a personal note, my wife was swindled out of more than $200,000 on a Seattle-based scam by a joker named Darren Berg.

He sold “second deeds of trust in Arizona” that actually were recommended by my wife’s investment adviser (thankfully, not me; this was before we met).

Rumor has it that Berg has been hiding in Brazil for the past 15 years, after being convicted of fraud and escaping jail.

Bottom line: This can happen to anyone.

Protecting Yourself

So, what to do to protect yourself against fraud? There seem to be some key common denominators in most of these frauds:

• You’re pressured to act NOW.
• You’re promised high returns with low risk.
• The fraudster promises to have a “hot tip” or “insider information.”
• The promoter is not registered to sell investments.
• The deal seems too good to be true.

Consider the online phishing scams that almost always warn you that something is very wrong and that you must act right away.

Examples: Grandson in a Mexican jail and needs bail money; big computer problems that the sender can fix now; your electricity is going to be turned off unless you pay now.

And nearly all the investment scams pitch the holy grail of investing: great returns with little risk.

Ponzi promised 50% returns in just 45 days. Madoff showed clients steady double-digit stock returns with very little of the market’s volatility.

Romance scams may not seem like an investment scam at first. They usually start out with the fraudster initiating a relationship and gaining your trust (and maybe love), but before long is asking for money or pitching a great investment tip.

And as we saw with Lovett, affinity fraud is common, with crooks targeting a common group such as a volunteer group, church or workplace.

Another scam is called “pump and dump” in which the scammer pitches an incredible deal on a low-priced stock. The scammer owns a lot of the stock (whether directly or through options), and a high volume of new purchases by unsuspecting victims pumps up the stock’s value quickly.

 When the stock price peaks, the scammer quickly dumps his big position and the price then plummets, with you holding the bag for his big gains.

The SEC’s “What You Can Do to Avoid Investment Fraud” offers some good advice:

• Ask Questions. Fraudsters are counting on you to act quickly without investigating. Do your own digging. 
• Research Before You Invest. Understand a company’s business and its products/services. Look for company financial statements on the SEC’s EDGAR filing system.
• Know the Salesperson. Check out the seller, even if you know them socially. Are they licensed in your state? Prior run-ins with regulators? Free disciplinary histories of brokers/advisers are available on the SEC’s and FINRA’s online databases.
• Be Wary of Unsolicited Offers. Especially if you can’t find current financial information from an independent source (not the seller).
• Protect Yourself Online. Use challenging passwords and change them regularly. Look for the “S” in https website urls. Use a good virus protection system. Be careful where you click.
• Know What to Look For. See points 1-5 above. Don’t fall for these common scam traits.

I will add a personal tip to help avoid investment fraud: Make sure your investments are held out of reach from the adviser. Self-custody should be seen as a big RED FLAG warning.

Madoff clients wrote their checks to Madoff Securities, and the firm printed its own statements that turned out to be full of lies.

By contrast, client assets at the big brokerage firms — and most Independent Registered Investment Advisors — are custodied by a broker-dealer who holds assets and provides trading/reporting independent of the adviser.

When opening an account, your check is payable to well-known firms like Merrill Lynch, Morgan Stanley, Fidelity, Schwab, etc.

Beware if asked to write your check (or even worse yet, give cash) to the adviser. STOP and do some serious checking.

There are many excellent sources of additional information about all of this. Having used Charles Schwab as custodian for client assets over the years, I’m very familiar with its commitment to protecting clients and its whole suite of helpful information pieces. Click here for Schwab’s Security Knowledge Center.

And you can probably get similar help from your bank, investment adviser, securities firm and even your technology provider.

Just watch for warning signs — and when in doubt, check it out!