Financial FraudFraud In law, fraud is intentional deception to secure unfair or unlawful gain (money or other assets), or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation) or criminal law (e.g., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities), or it may cause no loss of money, property, or legal right but still be an element of another civil or criminal wrong. The purpose of fraud may be monetary gain or other benefits, for example by obtaining a passport, travel document, or driver's license, or mortgage fraud, where the perpetrator may attempt to qualify for a mortgage by way of false statements. A fraud can also be a hoax, which is a distinct concept that involves deliberate deception without the intention of gain or of materially damaging or depriving a victim.: Explained
A SCARSSCARS SCARS - Society of Citizens Against Relationship Scams Inc. A government registered crime victims' assistance & crime prevention nonprofit organization based in Miami, Florida, U.S.A. SCARS supports the victims of scams worldwide and through its partners in more than 60 countries around the world. Incorporated in 2015, its team has 30 years of continuous experience educating and supporting scam victims. Visit www.AgainstScams.org to learn more about SCARS. Guide Based Upon FINRA Information
All fraud uses deception to enrich the fraudsters. In the case of financial fraud, deception and misrepresentation are used in conjunction with financial products, investments, or personal assets such as a house.
While financial fraud encompasses a wide range of illegal behaviorBehavior Behavior / Behavioral Actions Otherwise known as habits, behavior or behavioral actions are strategies to help prevent online exploitation that target behavior, such as social engineering of victims. Changing your behavior is the ONLY effective means to reduce or prevent scams., our focus is on frauds that primarily target individuals: Ponzi schemesPonzi Schemes A Ponzi scheme is a type of investment fraud. Use this information to identify, report, and protect yourself against this type of scam., mortgage fraud, advance-fee schemes, relationship scamsRelationship Scam A Relationship Scam is a one-to-one criminal act that involves a trust relationship and uses deception & manipulation to get a victim to give to the criminal something of value, such as money! Click here to learn more: What Is A Relationship Scam?, and credit card theft are all-too-common examples.
In this article we are going to use certain terms interchangeably. Fraud is the same as ScamScam A Scam is a confidence trick - a crime - is an attempt to defraud a person or group after first gaining their trust through deception. Scams or confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, irresponsibility, or greed and exploiting that. Researchers have defined confidence tricks as "a distinctive species of fraudulent conduct ... intending to further voluntary exchanges that are not mutually beneficial", as they "benefit con operators ('con men' - criminals) at the expense of their victims (the 'marks')". A scam is a crime even if no money was lost.. FraudsterFraudster A Scammer or Fraudster is someone that engages in deception to obtain money or achieve another objective. They are criminals that attempt to deceive a victim into sending more or performing some other activity that benefits the scammer. is the same as ScammerScammer A Scammer or Fraudster is someone that engages in deception to obtain money or achieve another objective. They are criminals that attempt to deceive a victim into sending more or performing some other activity that benefits the scammer..
While the actual fraud varies, a similar set of tactics is used to separate victims from their money, including:
- gaining victims’ trust and confidence to gain money;
- using false information to induce victims to invest in or purchase products that don’t exist; or
- stealing identifying information.
A BIG PROBLEM
Obtaining an accurate estimate of fraud prevalence has been hindered by a number of factors. Estimates vary, sometimes widely, due to inconsistent definitions of fraud, differences in the types of fraud examined and the populations studied, underreporting of fraud, and the method used to measure fraud, such as law enforcement records or surveys. Prevalence estimates need to be considered in this context.
11-15% of U.S. Population Have Reported*
Recent studies estimate that between 11 and 15 percent of the population are self-reported victims of financial fraud. A Federal Trade Commission report from 2013 estimated 25.6 million people were victims of one or more of the financial frauds included in the survey during 2011. And a 2012 survey by the FINRA Foundation found that more than 8 in 10 respondents were solicited to participate in a potentially fraudulent offer, with 11 percent of all respondents losing a significant amount of money after engaging with an offer.
8 out of 10 Scammed!
Regardless of the varying prevalence rates, these and other studies conclude that financial fraud is a significant and costly problem. The Financial Fraud Research Center—a joint project of the Stanford Center on Longevity and the FINRA Foundation—estimated the financial cost of consumer scamsScams A Scam is a confidence trick - a crime - is an attempt to defraud a person or group after first gaining their trust through deception. Scams or confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, irresponsibility, or greed and exploiting that. Researchers have defined confidence tricks as "a distinctive species of fraudulent conduct ... intending to further voluntary exchanges that are not mutually beneficial", as they "benefit con operators ('con men' - criminals) at the expense of their victims (the 'marks')". A scam is a crime even if no money was lost. in the U.S. to be nearly $50 billion per year.
* SCARS NOTE: Since ONLY 3-5% of victims report these crimes, the actual number is probably 20 times (20x) what is estimated by the government since they only estimate based upon report numbers. Thus if they estimate US$50 billion x 20 = US$1 TRILLION DOLLARS. That number is much closer to the industry estimates of US$3 trillion dollars annual losses now.
These Numbers Are Likely The Tip Of The Iceberg
Experts in the field are well aware that financial fraud is largely underreported. Reporting one’s victimizationVictimization Victimization (or victimization) is the process of being victimized or becoming a victim. The field that studies the process, rates, incidence, effects, and prevalence of victimization is called victimology. is complicated by feelings of shameShame Shame is an unpleasant self-conscious emotion typically associated with a negative evaluation of the self; withdrawal motivations; and feelings of distress, exposure, mistrust, powerlessness, and worthlessness. and guilt, as well as other complex factors, such as:
- not knowing where to turn;
- feeling that reporting wouldn’t make a difference;
- fear that reporting will lead to a loss of legal or financial control;
- threats and intimidation from the perpetrators;
- loss of esteem or prestige in a victim’s social group;
- concern that reporting may culminate in a family member or friend being arrested or sent to prison, which is particularly concerning if the individual is dependent on the exploiter; and
- lack of confidence in the ability of authorities to respond and assist.
One valuable contribution victim advocates can make to the cause of fighting financial fraud is to encourage victims to report the crime. Advocates can help victims overcome the stigma of being “taken” by a fraudster. They can sympathize with what has happened but also emphasize the value of taking action—including reporting the crime to the proper authorities.
HOW FRAUD HAPPENS
SCARS NOTE: You are not alone. Millions of people are defrauded every year. And you are a target only because you have money and assets to steal—not because of a failing on your part.
We’ve all heard the timeless admonition: “If it sounds too good to be true, it probably is.” But fraudsters make their living by making sure the deals they tout appear both good and true. The trick is figuring out when “good” becomes “too good.” The common thread that binds different types of fraud is the psychology behind the pitch.
Many successful con artists are clever, disciplined, and highly skilled at what they do. Whether they make their pitch over the Internet, by telephone, through the mail, or in person, these criminals tend to use the same tactics time after time.
They’re masters of persuasion, tailoring their pitches to match the psychological profiles of their targets. They start by asking seemingly benign questions—about their target’s health, family, political views, hobbies, or prior employers. Once they know which buttons to push, they’ll bombard their targets with a flurry of influence tactics, which can leave even the savviest person in a haze. These methods are used to commit fraud by both strangers as well as family members or other loved ones.
Ultimately, scammers ensnare their victims into making an emotional, not rational, decision.
To learn more about the psychology of a scam, visit the FINRA Foundation’s www.SaveAndInvest.org.
It is impossible to compile a list of all the schemes used by perpetrators because the fraudsters—who spend their “careers” developing schemes to defraud victims—are continually creating new, inventive scams.
Knowing the exact scam is not as important as understanding that fraudsters rely on persuasion tactics designed to take assets from victims. The FBIFBI FBI - Federal Bureau of Investigation
The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice, the FBI is also a member of the U.S. Intelligence Community and reports to both the Attorney General and the Director of National Intelligence. A leading U.S. counter-terrorism, counterintelligence, and criminal investigative organization, the FBI has jurisdiction over violations of more than 200 categories of federal crimes, including financial fraud., AARP’s Fraud Watch Network, and the Better
Business Bureau (BBB) Scam Tracker, among others, has compiled lists of common schemes, available online at www.fbi.gov/scams-safety/fraud, www.aarp.org/fraudwatchnetwork, and www.bbb.org/scamtracker. Both AARP and BBB have developed scam-tracking maps to help consumers see what types of fraud are prevalent in their community and to make it easier to warn others.
RED FLAGS FOR FRAUD
- Phantom Riches: Dangling the prospect of wealth, enticing you with something you want but cannot have.
- Source Credibility: Trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience.
- Scarcity: Creating a false sense of urgency by claiming a limited supply or availability.
- Social Consensus: Leading you to believe that other savvy people have already invested or purchased.
- Reciprocity: Offering to do a small favor in return for you doing a big favor.
Financial Fraud Statistics
Research on consumer financial fraud is spread across a number of fields—including behavioral economics, psychology, marketing, law, finance, and criminology. In order to centralize research on financial fraud, the FINRA Foundation sponsors a Consumer Financial Fraud eJournal on the Social Science Research Network.
In the fall of 2017, the Bureau of Justice Statistics, a division of the Department of Justice, fielded a financial fraud victimization supplement to the National Crime Victimization Survey (NCVS).
The supplement yielded a large national sample from which to draw insights about the scope of the problem. The availability of accurate data on financial fraud victimization is a critical component in the fight against it.
MAJOR CATEGORIES OF FINANCIAL FRAUD
Although there are countless instances of financial fraud, the vast majority fall into four major categories. A brief description of each category is provided below, followed by some of the most common schemes employed by fraudsters in each major area. A list of key resources, most of them on the web, accompanies each fraud category, along with a brief explanation of what those resources offer.
Additional information about financial fraud is available in the Resources section at the end of this guide. Specific information about reporting and recovery for each category is provided in Section 3 of this guide, Action Steps by Fraud Type.
SCARS NOTE: Why are we covering other types of fraud and not just relationship or romance scams? Because the victim of one is likely to be the victim of one or more of the others too. Helping to understand all forms of fraud or scams will help potential victims avoid all of them.
1. Identity TheftIdentity Theft Identity theft is when someone uses another person's personal identifying information, without their permission, to commit fraud or other crimes. In both the U.K. and the United States it is the theft of personally identifiable information. Identity theft deliberately uses someone else's identity as a method to gain financial advantages or obtain credit and other benefits, and perhaps to cause other person's loss. The person whose identity has been stolen may suffer adverse consequences, especially if they are falsely held responsible for the perpetrator's actions. Personally identifiable information generally includes a person's name, date of birth, social security number, driver's license number, bank account or credit card numbers, PINs, electronic signatures, fingerprints, passwords, or any other information that can be used to access a person's financial resources.
Identity theft is a crime that involves the illegal access and use of an individual’s personal and/or financial information. Identity theft can result in financial loss and seriously damage a victim’s credit history, requiring substantial effort to repair. Identity theft often sets in motion or makes a victim more vulnerable to, other types of financial fraud.
Identity theft may be committed against anyone whose personally identifiable information (name, Social Security number, credit card number, date of birth, etc.) is exposed. In an increasingly electronic world, we are all at risk.
- ImposterImposter An impersonator is someone who imitates or copies the behavior or actions of another. There are many reasons for impersonating someone, such as: part of a criminal act such as identity theft, online impersonation scam, or other fraud. This is usually where the criminal is trying to assume the identity of another, in order to commit fraud, such as accessing confidential information or to gain property not belonging to them. Also known as social engineering and impostors. scams: pretending to be a trusted individual to convince victims to provide personal information and send money.
- Credit card skimmingSkimming The capturing of information from the magnetic stripe on your ATM and credit card by use of portable "skimmer" devices that are secretly installed on card-reading machines.: stealing a victim’s credit card information during a legitimate transaction (i.e., at a restaurant, gas station, or ATM).
- Phishing: using spam email or the phone to pose as a legitimate organization to lure victims into revealing bank or brokerage account information, passwords or PINs, Social Security numbers, or other types of confidential information. SmishingSmishing What is a smishing attack? Smishing is a form of social engineering that exploits SMS, or text, messages. Text messages can contain links to such things as webpages, email addresses or phone numbers that when clicked may automatically open a browser window or email message or dial a number. This integration of email, voice, text message, and web browser functionality increases the likelihood that users will fall victim to engineered malicious activity. occurs through text messages with the same objectives as phishing.
- Hacking: electronically breaking into personal computers, databases at financial institutions, and online retailers to steal personal information.
- Data breaches: incidents in which sensitive, protected, or confidential data has potentially been viewed, stolen, or used by an individual unauthorized to do so.
- Stealing a wallet or purse: using someone’s driver’s license, personal checks, or credit or debit cards directly.
- Dumpster diving: searching through trash to find personal information to steal.
- Relationship scams: where the victim provides the information to the scammer.
2. Investment Fraud
Investment fraud generally refers to a wide range of deceptive practices that scammers use to induce investors to make investing decisions. These practices can include untrue or misleading information or fictitious opportunities. Investment fraud may involve stocks, bonds, notes, commodities, currency, or even real estate, and the scams can take many forms. Fraudsters can turn on a dime when it comes to developing new pitches or come-ons.
Research funded by the FINRA Investor Education Foundation shattered the stereotypes of investment fraud victims. Initial and follow-up research found typical victims to be:
- predominantly male;
- financially knowledgeable (victims scored higher on financial literacy tests than nonvictims);
- college-educated; and
- self-reliantSelf-Reliant Self-Reliance is the need for each individual to avoid conformity and false consistency and follow his own instincts and ideas. It emphasizes the importance of individualism and its effect on an individual's satisfaction in life. when it comes to making decisions.
In addition, victims tended to have an above-average income, and many older investors (ages 55 to 65) showed a willingness to engage in financially risky behaviors. These behaviors included not checking the registration status of investment professionals or products, being open to new investment information and attending free-meal investment seminars, and relying on investment tips from people they knew.
- Pyramid scheme: when fraudsters claim that they can turn a small investment into large profits within a short period of time. But in reality, participants make money by getting new participants into the program. The fraudsters behind these schemes typically go to great lengths to make their programs appear to be legitimate multilevel marketing schemes. Pyramid schemesPyramid Schemes Pyramid schemes are scams that need a constant flow of new participants to keep them going. They are marketed as multi-level marketing programs or other types of legitimate businesses. They use new recruits’ "investments" to pay “profits” to those participating longer. Pyramid schemes collapse when they can't recruit enough new participants to pay earlier investors. These scams always fail—it’s mathematically guaranteed. eventually fall apart when it becomes impossible to recruit new participants, which can happen quickly.
- PonziPonzi A Ponzi Scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own. scheme: a person known as a “hub” attracts money from new investors and uses it to pay so-called “returns” to earlier-stage investors, rather than investing or managing the money as promised. Like pyramid schemes, Ponzi schemes require a steady stream of incoming cash to stay afloat. But unlike pyramid schemes, investors in a Ponzi scheme typically do not have to recruit new investors to earn a share of the “profits.” Ponzi schemes tend to collapse when the fraudster at the hub can no longer attract new investors or when
too many investors attempt to get their money out—for example, during turbulent economic times.
- Market manipulation or “pump and dump” scam: a fraudster deliberately buys shares of a very low-priced stock of a small, infrequently traded company and then spreads positive, usually false, information to build (or “pump”) interest in the stock. Believing they’re getting in early on a promising investment, unknowing investors create buying demand, resulting in a rapidly
increasing stock price. The fraudster then sells (or “dumps”) his or her shares at a higher price and vanishes, leaving many people caught with worthless shares of stock when it becomes apparent there was no basis for the positive outlook for the promoted company.
- Advance-fee scheme: the fraudster offers to pay an enticingly high price for worthless stock in the investor’s portfolio. However, the investor must remit a “processing fee” in advance to pay for the service. The fraudster receives the payment from the investor but never purchases the stock, as intended. Advance-fee schemes often apply to many other common financial frauds, including beneficiary and lottery scamsLottery Scams These scams involve someone claiming you won a prize. However, they say you must pay a fee or provide sensitive banking information in order to get it. They keep the money, and you get nothing for it. and the oft-mentioned “Nigerian 419419 An advance fee scam or fraud (419 scam) is a form of fraud and is one of the most common types of online confidence tricks. The scam typically involves promising the victim a significant share of a large sum of money, in return for a small up-front payment, which the fraudster claims will be used to obtain the large sum. If a victim makes the payment, the fraudster either invents a series of further fees for the victim or simply disappears. The 419 comes from the Nigerian law against this type of scam.” scam. Regardless of the hook, the format is the same—the consumer is tricked into handing over his or her own funds with the expectation of something of greater value, which never materializes.
SCARS NOTE: It may seem strange to see the typical Nigerian Prince 419 style scams listed as an Investment Fraud, but in actuality, the victim is making an investment into the scam – be it gold in a box, cash in an account, or some other valuable asset. It is an advance investment in securing that asset that is at the core of this type of scam.
3. Mortgage and Lending Fraud
Traditional mortgage fraud includes situations in which homebuyers and/or lenders falsify information to obtain a home loan. False information can include overvalued appraisals, guarantees of low-interest rates, inflated income, and the fraudulent use of someone’s name without the knowledge of that individual. This fraudulent activity can also include loan modification, foreclosure prevention, and other lending fraud, for example, in which a consumer is promised a service related to a mortgage (whether new or refinanced) in exchange for an up-front fee. Unfortunately, many of these loan modification and foreclosure prevention fraudsters take the pre-paid money and disappear before providing any services to the victim.
These scams use a variety of simple tactics to identify their financially distressed victims. Some scammers locate distressed borrowers from published foreclosure notices or other publicly-available sources. Others rely on mass-marketing techniques such as flyers, radio, television, and Internet advertising to lure in distressed borrowers. Still, others deceptively suggest an affiliation with a government agency to quickly earn the trust of unwitting victims.
- Appraisal fraud: loan officer fraudulently overvalues an appraisal to make a sale.
- Mortgage rescue and loan modification scam: an advance-fee scam where homeowners are lured with promises to save them from foreclosure or lower their mortgage payments—in exchange for an advance or monthly fee. Sadly, many of these homeowners never get the relief they have been promised.
- Reverse mortgage scam: while they can be useful products and are not fraudulent per se, reverse mortgages have been associated with high fees and aggressive marketing as an easy way for retirees to finance lifestyles—or to pay for risky investments—that can jeopardize their financial futures. In some cases, a victim pays an advance fee to obtain a reverse mortgage that is never
- Loan origination scheme: perpetrator originates a loan using false information (e.g., misrepresenting the buyer’s income or employment).
4. Mass Marketing and Other Fraud
Mass marketing fraud is the use of false promises of cash prizes, services, goods, or good works in exchange for fees, donations, or purchases. This crime may be committed through the mail, telephone, email, television ads or infomercials, or any other form of mass or individual communication.
This fraud is often defined by the form of communication used to conduct it. Mail and wire fraud occurs when U.S. mail or a wiring service, respectively, are used to further a fraud scheme—whether it originated in person, through the mail, by telephone, or over the Internet. In many cases, these violations are associated with other areas of fraud. For instance, a Ponzi scheme investment opportunity may be marketed through U.S. mail with “investment” payments made through a wire service.
Most of the schemes described below are perpetrated through an advance-fee scenario; the targeted consumer is enticed to send money first in anticipation of a much greater reward, opportunity, or return that is never realized.
- Fake check scams: a cashier’s check is sent by mail along with a letter that claims the consumer has won a lottery or is otherwise owed money (perhaps is the beneficiary of an estate of a relative they’ve never met). The consumer is asked to pay a “processing fee” or “taxes” on their windfall before the funds can be released to them. The cashier’s check is provided purportedly as an advance to help them pay the fee or taxes. The scammer instructs the victim to deposit the check into a bank account, extract all or a portion of the proceeds in cash from the bank account, and then send a payment via a wire transfer to cover the fee or taxes. By the time the victim and the bank discover the cashier’s check is counterfeit, the wire transfer has been claimed by the fraudster, robbing the victim of the amount of the transfer.
- Foreign lottery schemes: promises of winnings from a fraudulent foreign lottery with the requirement that the “winner” pay an advance fee to cover taxes before the winnings can be released.
- Home-repair scams: door-to-door campaigns or telephone calls, where scammers offer services at discounts or explain that changes and repairs need to be made immediately. The scammers often lack business licenses, ask for a large portion of the money upfront, and either never start or start but never finish the job. Targets for these scams are typically older adults or low-income families.
- Mystery shopper scams: “hiring” a victim to serve as a mystery shopper to evaluate stores or restaurants; the victim is conned into paying an advance fee to apply and then receives no compensation.
- “Nigerian” email or telephone schemes: an offer received by mail, telephone, or email for the “opportunity” to share a percentage of millions of dollars that the scammer purports to be transferred out of Nigeria or other countries; the victim is scammed out of an advance payment that was required before receiving his or her “share.”
- Romance scams: begins with fake profiles on online dating sites or social media created by stealing photos and text from real accounts or elsewhere. Scammers often claim to be in the military or working overseas to explain why they can’t meet the target in person. Over a short period of time, the scammer builds a fake relationship with the target, exchanging photos and romantic messages, even talking on the phone or through a webcam. Just when the relationship seems to be getting serious, a health issue or family emergency arises, or the scammer wants to plan a visit. No matter the story, the request is the same: they need money. After the victim sends money, there’s another request, and then another. Or the scammer stops communicating altogether.
- Sweepstakes schemes: offerings that inform consumers they have “won” a sweepstakes (that they have, in most cases, never entered); the victim is conned into paying taxes or service fees but ultimately receives no prizes or benefits.
- Tax collection scams: most often perpetrated by phone and take two basic forms. In the first version, the IRSIRS The Internal Revenue Service (IRS) is the revenue & tax service of the United States federal government responsible for collecting taxes and administering the Internal Revenue Code (the main body of federal statutory tax law.) It is part of the Department of the Treasury and led by the Commissioner of Internal Revenue, who is appointed to a five-year term by the President of the United States. The duties of the IRS include providing tax assistance to taxpayers; pursuing and resolving instances of erroneous or fraudulent tax filings; and overseeing various benefits programs. Visit www.IRS.gov to learn more. “agent” says the target owes back taxes and pressures the target into paying by prepaid debit card or wire transfer. The scammer threatens to arrest the victim and impose fines for noncompliance. In the other version, scammers claim they are issuing tax refunds and will ask for personal information under the guise of transferring a refund. This information can later be used for identity theft.
- Tech support scamsTech Support Scams Phone scammers may masquerade as tech support employees for a major company in order to take your money or install a virus on your computer. They may call from what seem to be legitimate company numbers using caller ID spoofing.: target receives a telephone call or a computer screen popup from someone claiming to be with tech support from a well-known software company. Often the scammer will create a sense of urgency—the computer is sending error messages, they’ve detected a virusVirus A computer program that can replicate itself and spread from computer to computer or file to file. It comes to life only when you take a specific action, such as running a particular program., or your computer is about to crash and you’ll lose all your data! The target is told only a tech support employee can fix the problem, and then asked to allow access to his or her machine. Once access is granted, the scammer will claim the computer is infected with viruses and offer to fix the problem…for a fee. That may not be the end of the scam. If allowed remote access, scammers may also install onto the computer, scanning files in search of personal information, which scammers can use to commit identity theft.
- Work-from-home and business opportunity scams: for a “small fee,” the ad says, individuals can learn how to earn money working from home or buying into a franchise business opportunity. But once they pay the fee, they find out the promoter never had any work or business opportunity to offer. Many times, after the victims send in money, they receive a letter instructing them to convince other people to buy into the same “opportunity” or some other product. The only way to earn any money is if others pay in.
VICTIMS AND PERPETRATORS
Who Are Victims?
Anyone can be a victim of financial fraud.
Many are victims over and over!
Research consistently shows that victims come from all education levels and socio-economic backgrounds. There is no single profile of a victim of financial fraud, and there is no level of intelligence that can prevent a person from being victimized. Everyone is at risk.
Even though anyone can be a victim, some types of financial fraud are more prevalent among particular groups of people. For instance, victims of investment fraud are most often male, financially literate, college-educated, and approaching or in retirement. Lottery fraud victims are more typically single, older consumers and those who have lower levels of education and income. Victims of violent crime are more likely to have experienced identity theft in the years prior to violent crime than others.
It is important for victim advocates to understand that victims of financial fraud have not only been financially devastated but also emotionally deceived. They often feel isolated and blameBlame Blame or Blaming is the act of censuring, holding responsible, making negative statements about an individual or group that their action or actions are socially or morally irresponsible, the opposite of praise. When someone is morally responsible for doing something wrong, their action is blameworthy. By contrast, when someone is morally responsible for doing something right, we may say that his or her action is praiseworthy. Blame imparts responsibility for an action or act, as in that they made a choice to perform that act or action. themselves and their intellectual capacity for the fraud. Financial predators are skilled operators of scams. They possess a shrewd understanding of human behavior and how to manipulate people.
In some cases, perpetrators of financial fraud may also be family members of victims, which can increase victims’ emotional turmoil. Recognizing that everyone is vulnerable to fraud, and making this clear to the victim, helps remove the embarrassment that can be so devastating.
Some populations are more frequent targets of fraudsters because of their age, health, or life situation. Among those targeted are:
- Elderly or senior adults, especially those who depend on family and friends for their care or those who have physical or mental impairments;
- Individuals who are physically impaired;
- Individuals who have cognitive issues or age-related mental incapacity (e.g., dementia, including Alzheimer’s Disease);
- Those who are grieving the loss of a loved one;
- Victims of domestic violence;
- Immigrants or Ex-Patriots unfamiliar with local laws & customs;
- New and near-retirees; and
- Previous victims of financial fraud.
Fraudsters target such populations for a variety of reasons. They may think these groups will more easily hand over control of their finances due to cognitive disability, emotional fragility, or simply a desperate need for a quick financial fix.
They may also target them for one simple reason: they have money. This is the case with new and near-retirees who may be likely to have access to retirement savings or pensions and may be open to suggestions for how to handle these funds.
It is also the case for those who have recently come into a financial settlement or monetary windfall—such as an inheritance, lottery winning, or professional athletics contract.
Not every person who encounters a fraudster becomes a victim of financial fraud. The victim’s response to the fraud appeal can affect the outcome. Researchers are particularly interested in identifying behaviors that differentiate victims from non-victims in similarly targeted populations. According to an AARP Foundation National Fraud Victim Study, other factors predisposing people to financial fraud (excluding identity theft) include:
- a high level of interest in persuasion statements that are commonly made by fraudsters and salespeople; and
- increased exposure to sales situations, such as attending free-meal financial seminars and opening and reading all mail.
These considerations are important for advocates to recognize in individuals to help them prevent further victimization.
Who Are Perpetrators?
SCARS NOTE: These perpetrators are manipulative and highly organized. They use tactics to gain your trust. But by working together—being proactive and organized—we can put a stop to their violations and help you recover.
For victim advocates, understanding who may be a potential exploiter is every bit as important as knowing who may be commonly targeted.
Depending on the type of crime, perpetrators may be perfect strangers whom victims have never met or individuals whom the victims know and trust, such as relatives, caretakers, friends, or colleagues.
Fraudsters often target their victims through traditional offline social networks, such as community service groups, professional associations, or faith-based organizations. Scammers infiltrate groups of individuals connected through common interests, hobbies, lifestyles, professions, or faith to establish strong bonds through face-to-face contact and sharing personal interests before launching their schemes.
Perpetrators may include:
- Family members, especially those caring for the victim or those in a position of control over the family member’s care
- Trusted advisers, such as:
- Investment professionals
- Members or leaders of a victim’s affinity groups, such as:
- Religious bodies
- Civic groups
- Cultural groups
- Political parties
- Book clubs
- Community groups
- Professional organizations
In general, most perpetrators of financial fraud (outside of identity theft) are individuals whom the victim trusts. That trust is the vehicle for financial fraud and often makes the fraud particularly devastating to the emotional stability and confidence of the victim.
COSTS OF FINANCIAL FRAUD
Financial fraud can exact a heavy emotional toll on its victims, whose reactions to being victimized may resemble those of other crime victims, including victims of violent crime.
Understanding such reactions is key to aiding the emotional recovery of financial fraud victims.
2/3 of Victims Experience At Least ONE Non-Financial Cost To A Serious Degree
The FINRA Investor Education Foundation’s research report, Non-Traditional Costs of Financial Fraud, examined the broader impact of financial fraud and found that nearly two-thirds of self-reported financial fraud victims experienced at least one non-financial cost of fraud to a serious degree—including severe stress, anxiety, difficulty sleeping, and depression.
SCARS NOTE: You have been through an emotional and financial shock. Your money may or may not be recoverable. But we can work together to rebuild your life and help you move forward.
Fraud victims often suffer from:
- denialDenial Denial is a refusal or unwillingness to accept something or to accept reality. Refusal to admit the truth or reality of something, refusal to acknowledge something unpleasant; And as a term of Psychology: denial is a defense mechanism in which confrontation with a personal problem or with reality is avoided by denying the existence of the problem or reality.;
- angerAnger Anger, also known as wrath or rage, is an intense emotional state involving a strong uncomfortable and non-cooperative response to a perceived provocation, trigger, hurt or threat. About one-third of scam victims become trapped in anger for extended periods of time following a scam. A person experiencing anger will often experience physical effects, such as increased heart rate, elevated blood pressure, and increased levels of adrenaline and noradrenaline. Some view anger as an emotion that triggers a part of the fight or flight response. Anger becomes the predominant feeling behaviorally, cognitively, and physiologically. Anger can have many physical and mental consequences. While most of those who experience anger explain its arousal as a result of "what has happened to them", psychologists point out that an angry person can very well be mistaken because anger causes a loss in self-monitoring capacity and objective observability.;
- loss of sleep;
- loss of self-confidence;
- loss of trust in others; and
- depression or anxiety, or a combination of the two.
Financial fraud victims often feel as though they should have known better or done more to prevent the fraud. It is important for advocates to stress that the blame for the crime belongs to the perpetrator, not the victim.
Monetary / Financial Costs
SCARS NOTE: Financial fraud is a real crime of opportunity, much like burglary. The victim is not to blame for the fraud. No one deserves to be a victim of fraud, and you are certainly not at fault for this crime. The perpetrator is responsible.
Financial fraud amounts to billions of dollars lost annually. For individual victims, the cost can be devastating. In addition to losing significant sources of income and equity, victims often must spend months sorting through a confusing series of reporting requirements and dealing with financial institutions simply to stop the fraud from continuing to occur.
After all that, financial recovery may be limited or impossible. Advocates can help manage the expectations of the victim in relation to financial recovery. Victims need to understand that although recovery of lost assets may not be possible, they can take back control of their lives and financial futures, and put an end to the traumaTrauma Emotional and psychological trauma is the result of extraordinarily stressful events that shatter your sense of security, making you feel helpless in a dangerous world. Psychological trauma can leave you struggling with upsetting emotions, memories, and anxiety that won’t go away. It can also leave you feeling numb, disconnected, and unable to trust other people. Traumatic experiences often involve a threat to life or safety or other emotional shocks, but any situation that leaves you feeling overwhelmed and isolated can result in trauma, even if it doesn’t involve physical harm. It’s not the objective circumstances that determine whether an event is traumatic, but your subjective emotional experience of the event. The more frightened and helpless you feel, the more likely you are to be traumatized. Trauma requires treatment, either through counseling or therapy or through trauma-oriented support programs, such as those offered by SCARS. and stress of being victimized.
Individual victim losses may include:
- time and money spent clearing up financial and credit records;
- lifetime or retirement savings, benefits, or personal property;
- home or home equity;
- retirement income;
- ability to live independently; and
Financial loss can vary significantly by the type of fraud. Romance scams, which occur when a perpetrator uses feigned romantic intentions towards a victim to gain their affection then commits fraud, often result in significant loss.
The average victim of a romance scam loses over $100,000. Conversely, tax scams (a type of imposter scamImposter Scam A caller poses as someone you know or trust in order to obtain money or personal information. They often spoof a legitimate caller's number to appear more realistic. where the perpetrator pretends to be calling from a government agency to demand
money or personal information) are quite common, but few victims report monetary loss.
SCARS NOTE: This last statement is VERY SIGNIFICANT. SCARS own estimates are the romance scam victims lose an average of $14,000 (2020); however, FINRA is now estimating losses of US$100,000 – AVERAGE. This is a significant escalation in the scammers’ ability to extract ever-larger amounts from victims in 2020 and going into the future.
The Non-Traditional Costs of Financial Fraud report also found that, beyond psychological and emotional costs, nearly half of fraud victims reported incurring indirect financial costs associated with the fraud, such as late fees, legal fees, and bounced checks. Twenty-nine percent of respondents reported incurring more than $1,000 in indirect costs, and 9 percent declared bankruptcy as a result of the fraud. An important insight from this research is that nearly half of victims blame themselves for the fraud—an indication of the far-reaching effects of financial fraud on the lives of its victims.
In short, the costs of financial fraud go well beyond the loss of money, and include emotional and mental healthMental health Mental health, defined by the World Health Organization (WHO), is "a state of well-being in which the individual realizes his or her own abilities, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to his or her community". According to WHO, mental health includes "subjective well-being, perceived self-efficacy, autonomy, competence, intergenerational dependence, and self-actualization of one's intellectual and emotional potential, among others". From the perspectives of positive psychology or of holism, mental health may include an individual's ability to enjoy life and to create a balance between life activities and efforts to achieve psychological resilience. Cultural differences, subjective assessments, and competing professional theories all affect how one defines "mental health". costs for victims.
SCARS NOTE: SCARS is a government registeredgovernment-registered It means to be registered with departments or agencies of the government. In the case of SCARS, we are registered with state and federal governments in the United States, Europe & Asia. SCARS is registered as a crime victims' assistance nonprofit with agencies of the Department of Justice and Department of Homeland Security. And is incorporated in the State of Florida as a nonprofit corporation. crime victims assistance & crime prevention nonprofit organization. We serve as a support organization as well as victims’ advocates
Anyone can be scammed. It has nothing to do with intelligence, it is simply the way humans’ brains function.
We trust strangers, we allow our bias to over-rule our rational mind, we rely on emotions and reactions. These are all just a part of the reason why people become the victim of financial fraud.
The only way to be safe and immune to fraud is not to play!
This means you have to develop behaviors that hold you back from impulsive reactions. That forces you to take the time to think it through. And that includes a “buddy-network” that you can call or contact to help you decide if something is real and safe. If you can do just those things, you will avoid 99% of fraud.
Equally important is to know that if you are scammed, there is help available. You may not get the outcome you want, but without help, most victims will not recover, don’t be one of those. However, just as important – there are tens of thousands of self-appointed experts, saviors, haters & vigilantes, and amateur groups out there online – avoid them like the plague. Don’t let amateurs direct your future. Avoid amateurs.
Also, be cautious because the scammers/fraudsters also mimic victims’ support groupsSupport Groups In a support group, members provide each other with various types of help, usually nonprofessional and nonmaterial, for a particular shared, usually burdensome, characteristic, such as romance scams. Members with the same issues can come together for sharing coping strategies, to feel more empowered and for a sense of community. The help may take the form of providing and evaluating relevant information, relating personal experiences, listening to and accepting others' experiences, providing sympathetic understanding and establishing social networks. A support group may also work to inform the public or engage in advocacy. They can be supervised or not. SCARS support groups are moderated by the SCARS Team and or volunteers. to lure in victims for another go. Remember to trust no one until you have verified them.
- Never waste money on scam investigators – you already know it is a scam, and an investigator will just confirm what you already know. Investigators have a real role in local fraud, but not international or transnational cyber-enabled fraud.
- There are a handful of real money recovery companies- but many times more fake ones. A real money recovery company is a mix of legal and financial services. They will have licensed attorneys on staff and will be able to provide the name(s) and where they are licensed – you can check their identity and status online – do it! They will also be real corporations that can be verified on government websites, usually the state or other government registrar of corporations. Trust no one and verify everything.
- Do not join an amateur anti-scam group – they will only focus on anger and hate and aggression. They will also flood you with fake or false information, including about real victims’ assistance organizations. They are driven by their own misguided desire for control over you and over scammers – only failing and doing harm in the process.
- Do not follow saviors. Real victims’ assistance nonprofits have a real management team, not a figurehead. Any group that has a figurehead should be avoided, as to see their corporate structure, who their board of directors are – if they don’t have one avoid them. Besides, no one can save you. We can show you the way, but every victim uses the resources available to save themselves.
- If you suspect something is wrong, it is!
- Stop talking with the scammer or fraudster immediately
- Always report the crime, the police report is not about the scammer, it is a tool you will need in your future.
- Make sure the police forward your complaint to the right people – State cybercrimesCybercrimes Cybercrime is a crime related to technology, computers, and the Internet. Typical cybercrime are performed by a computer against a computer, or by a hacker using software to attack computers or networks. unit, the FBI, etc. They may not be able to act, but others can if they will forward the case along.
- Joins a professionally managed support groupSupport Group In a support group, members provide each other with various types of help, usually nonprofessional and nonmaterial, for a particular shared, usually burdensome, characteristic, such as romance scams. Members with the same issues can come together for sharing coping strategies, to feel more empowered and for a sense of community. The help may take the form of providing and evaluating relevant information, relating personal experiences, listening to and accepting others' experiences, providing sympathetic understanding and establishing social networks. A support group may also work to inform the public or engage in advocacy. They can be supervised or not. SCARS support groups are moderated by the SCARS Team and or volunteers. that excludes scammers, haters, trolls, and hostile saviors. SCARS provides groups here:
- On Facebook: www.facebook.com/groups/SCARS.Avoidance.Information.Public.Group/
- On the Web: www.ScamVictimSupport.org
The fact that you have been scammed means you at TEN TIMES more likely to be scammed again.
The following represent realistic expectations after a scam:
- Local frauds can be effectively investigated by the police, some crimes are Federal and have to be referred. But YOU have to stay on top of the police to get an outcome – they are busy and the victim that stays in contact will get more attention.
- International scams or transnational fraud are deadends for the local policeLocal Police The Local Police is your first responder in most countries. In most English-speaking countries and in Europe report to them first. In other countries look for your national cybercrime police units to report scams to. In the U.S., Canada, & Australia, you must report to the local police first., but your report is still important since it grants access to benefits and helps with related banking and other future claims, including bankruptcy.
- You will not get your money back if you sent it out of your country. If you sent it to someone in your country you may have to litigate to get recovery.
- You will be traumatized if you are a victim of fraud, you are NOT just ok. Join a support group and seek local counselingCounseling Counseling is the professional guidance of the individual by utilizing psychological methods especially in collecting case history data, using various techniques of the personal interview, and testing interests and aptitudes. A mental health counselor (MHC), or counselor, is a person who works with individuals and groups to promote optimum mental and emotional health. Such persons may help individuals deal with issues associated with addiction and substance abuse; family, parenting, and marital problems; stress management; self-esteem; and aging. They may also work with "Social Workers", "Psychiatrists", and "Psychologists". SCARS does not provide mental health counseling. or therapy. Most victims do not and do not successfully recover. Scams and fraud can break you for life if you do not take it seriously.
- Avoid a fixation on scammers and fraudsters, you need to heal. Also as a victim, you are not an expert, you became a victim because you were not an expert. Do not assume you can save people. You may be able to volunteer with SCARS when you are ready – we can help you to know when that is.
- Avoid other angry victims – make sure that any support group is a positive experience.
- You should talk with your family and friends about what happened – it really will help you. See our guide on how to talk to family and friends for guidance.
- Recovery takes time. In fact, for most victims, the emotional recovery can take one to two years, but the financial recovery can take much longer. Expect this.
You can survive a scam, but it is not easy.
Get help, and get better.
We are here to help!
Please Note: Due to the dynamic nature of websites, users of this guide should be aware that resources described may change or move locations at any time. Advocates are encouraged to archive any resources they find particularly useful.
TAGS: SCARS, Financial-Fraud-Explained, Smishing, Phishing, Financial Fraud, Financial Scams, Investment ScamsInvestment Scams When a caller claims to have a promising investment opportunity that will help you get rich quick, it's likely a scam., Other Scams, Information About Scams, Anti-Scam, Scams, Scammers, Fraudsters, Cybercrime, Crybercriminals, Romance Scams, Scam Victims,
Society of Citizens Against Relationship ScamsSCARS SCARS - Society of Citizens Against Relationship Scams Inc. A government registered crime victims' assistance & crime prevention nonprofit organization based in Miami, Florida, U.S.A. SCARS supports the victims of scams worldwide and through its partners in more than 60 countries around the world. Incorporated in 2015, its team has 30 years of continuous experience educating and supporting scam victims. Visit www.AgainstScams.org to learn more about SCARS. Inc.
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FAQ: How Do You Properly Report Scammers?
It is essential that law enforcement knows about scams & scammers, even though there is nothing (in most cases) that they can do.
Always report scams involving money lost or where you received money to:
- Local Police – ask them to take an “informational” police report – say you need it for your insurance
- U.S. State Police (if you live in the U.S.) – they will take the matter more seriously and provide you with more help than local police
- Your National Police or FBI « www.IC3.gov »
- The SCARS|CDN™ Cybercriminal Data Network – Worldwide Reporting Network on « www.Anyscam.com »
This helps your government understand the problem, and allows law enforcement to add scammers on watch lists worldwide.
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To learn more about SCARS visit « www.AgainstScams.org »
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