Outsmarting Investment Fraud

If a Bernie Madoff wanna-be comes calling, the folks who attended a workshop in early March called, “Outsmarting Investment Fraud” at Champlain College will be ready… and they will not be taken in.

Co-sponsored by the Center for Financial Literacy at Champlain College, the Financial Industry Regulatory Agency Investor Education Foundation, the Vermont Department of Banking, Insurance, Securities and Health Care Administration and Vermont Public Television, the presentation’s main focus was on how to spot an investment opportunity that’s just too good to be true. BISHCA, FINRA and VPT have collaborated on 25 workshops in 10 counties attended by more than 400 people. The Champlain College presentation was an extension of that work. Unfortunately, a record-setting snowstorm the day before kept attendance down as many still had trouble negotiating epic snowbanks.

After opening remarks, the Savvy Seniors, a local group of Lyric Theatre members, performed two skits to demonstrate how to handle two scenarios in which seniors are the targets of scams. In the first skit, a woman read chatty e-mails to her inattentive husband. When she asked him for their credit card number in response to what appeared to be a request from their bank, he suddenly perked up and demanded that she erase the offending e-mail. “There are bad people on the Internet just waiting for the opportunity to steal,” he said, as his wife hurriedly shut the laptop. In the second skit, the son of a friend knocked on the couple’s door selling annuities. He claimed he was only responding to a request for more information that the husband filled out. The husband insisted he had filled out a government form, not something for a private company, but the salesman pointed out the tiny print which indicated otherwise. Furious, the husband kicked him out.

A large portion of the event was devoted to a presentation by Bill Carrigan, a Securities Examiner at BISHCA. Carrigan said his objective for the evening was to turn attendees into “fraud fighters.”  His presentation was based on a variety of national research projects in which victims of investment fraud were interviewed, as well as those who were able to avoid being victimized. Carrigan divided his presentation into three categories:

Risk Factors; Persuasion Tactics; and Prevention

Carrigan said the typical victim of investment fraud is a 55 to 65-year-old man who is financially literate, college educated, has recently had a change in financial or health status, has a relatively high income and is a risk taker. Many are successful small business owners. Often, upon reaching retirement age, they find they are not where they hoped they would be financially and are looking for a quick fix. Other risk factors include relying on friends, family and co-workers for advice and failing to do background checks.

Carrigan divided the persuasion tactics used into five categories: phantom riches; source credibility; social consensus; reciprocity; and scarcity. He described Phantom Riches as the dangling of a prospect with incredibly high returns, which causes the potential mark to use emotion, rather than logic, in making an investment decision. He cautioned audience members to assess whether the promised returns are really possible. He told the story of a Vermont investor who gave money to a New York City firm with a Madison Avenue address which promised an 18 percent return. For a year, the company sent him checks for his “investment,” but after a year they stopped and his money disappeared. He discovered that the address was just a post office box at a UPS store, not a brokerage office.

Regarding Source Credibility, Carrigan stressed that it is important to know exactly who you are dealing with. Many brokerage firms give promotions based on commissions, so someone who calls himself a Vice President may not be a high ranking official.

Social Consensus is a method of getting people to invest by dropping names of prominent investors or overstating how many people have invested. Carrigan reminded attendees that the important thing is that you are interested in the investment, not that others are.

An example of Reciprocity is advisors who provide a free meal for those who attend a seminar. Often, those who attend feel compelled to schedule a follow-up appointment because they are grateful for the meal. Carrigan attended such a dinner under cover. The presenter refused to answer any questions, requesting that people make appointments to meet with him individually to learn more. Carrigan and his wife were the only ones not to do so.

Carrigan also cautioned people to be wary of claims of Scarcity. Just because something is rare, doesn’t mean it is valuable. As an example, he showed a fake clip from the Home Shopping Network which uses many of the persuasion tactics he mentioned – limited supply, reduced price, and numbers already sold.

In order to protect themselves from scammers, Carrigan suggests that potential investors reduce their exposure to con men, use care when attending seminars with free meals, avoid high risk investments, develop a refusal script since many people have difficulty saying no, and sign up for the Do Not Call registry. He told attendees to always ask brokers for their Central Registration Depository number or CRD and to call BISHCA if they have any questions. “The more education you have, the better off you’ll be,” he said.  He also asked attendees to share the knowledge they gained in the workshop with others to prevent any future Bernie Madoffs from taking Vermonters’ hard earned money.

For more information call 888-295-7422 or visit

This article was contributed by Phyl Newbeck.

Related Articles & Free Subscription

Avoiding 4 Common Retirement  Planning Mistakes

Don’t Be a Target…or a Victim

Don’t Play Politics with Your Portfolio

Free Subscription to Vermont Maturity Magazine

Comment here