Phishing the Regulators By William Cate
Scams evolve. Combining aspects of successful scams often creates more effective swindles. In 2005, swindlers have combined three classic scams and seem to have a moneymaker that works on the unwary middle-class with money in the bank.
The three core swindles are:
PHISHING
Phising [fish' - ing] is the creation of a replica website of a major financial firm's Web page. Spam is used to notify everyone that their account with the bank or financial service firm, like PayPal, must be updated or the pigeons will lose their money. The swindler's goal is to get the pigeon to submit personal, financial or password data. This data is then used to empty the bank account, to commit identity theft or to run charges against the pigeon's credit card.
Most business professionals see one or two of these phony notices everyday. Everyone should ignore them. The Phishing principle works well outside of cyberspace. Pretending to be Government regulators can be profitable.
NIGERIAN SCAM
The Nigerian Scam is also called the 419 Scam because it violates Section 419 of the Nigerian Legal Code. Spam is used to make a Soap Opera type offer to the pigeons. Someone has access to millions of dollars, usually from a relative's illegal activities in the oil business. The request is for help to move the money out of Nigeria or some other developing country. The pigeon starts off paying small amounts to associates of the swindler, for paperwork, document fees, tax costs, etc. Initial front fee payments are normally under a couple thousand dollars. As the victim is drawn into the Nigerian Soap Opera, the Pigeon's payment amounts grow. An unaware pigeon can easily be taken for a million dollars. As I've written in the past about the 419 Scam, anyone offering an unknown person a slice of a multi-million dollar pie is planning to carve up your bank account. Ignore all such email, fax or phone call pleas. Your failure to do so will be fatal to your bank balance.
FRONT FEES
The established business community regularly uses front fees. Attorneys, accountants,medical doctors, dentists, mechanics, opera houses, etc., often want part or all of their money before they supply their service. On the other hand, swindlers want your front fee and have no intention of supplying the promised product or service. Before you pay a front fee to anyone, be certain that the person being paid is an honest member of the business community. Swindlers know that most people will investigate before paying anyone a front fee. Swindlers solve this due diligence problem by regularly running the third scam on pigeon prospects.
REFERENCE SCAM
The Reference Scam is the policy of swindlers to use other charlatans as their references. Scam artists always have the best references. Their charlatan associates pretend to be senior bank officers, aides to major political figures, church leaders, vice presidents of multinational corporations, etc. The scam works because the swindler gives the pigeon the name of the reference AND their "private" phone number. The charlatans have a dedicated phone line with that phone number. Anyone who calls that line can expect it to be answered as whatever bank, firm, politician's office or church that the pigeon expects to be picking up the phone. Needless to say, if someone gives you references, you should call the general number associated with the reference. If the receptionist hasn't heard of the party, it's usually a reference scam.
EMOTIONS AND GREED
Swindles appeal to emotions, not logic. The first step in this two-part swindle appeals to the pigeon's greed. Fraudulent investment firms offer pigeons some variant of a Get-Rich-Quick Scheme usually involving their publicly traded shares. The swindler knows the stocks in the pigeon's investment portfolio. He or she offers to buy the shares well above market price. The pigeon is asked for a front fee to confirm the pending stock sale. The front fee is usually called a security bond. The Get-Rich-Quick Swindlers have put a new twist on the Reference Scam. Instead of the usual bankers, politicians, church luminaries and pillars of the corporate community, their business references are phony regulators.
PHANTOM REGULATORS
State regulators in Massachusetts, Missouri, Montana and New Jersey have uncovered such scams. For instance the Missouri Secretary of State on July 11, 2005 issued a cease-and-desist order against swindlers using Century Group Mergers and Acquisitions of Nebraska as their front. These swindlers used, as their corporate reference, "regulators' called the Securities Compliance Department Central Office in Kansas City. The cease-and-desist order included the phony regulators and individuals associated with this "regulatory" firm.
Among the amusing aspects of this scam is that a phone call to the Securities Compliance Department Central Office in Kansas City in late July got this message machine reply: "All of our investigators are currently attending to other calls. Please leave a message and someone will get back to you as soon as possible." This message was heard soon after the North American Securities Administrators Association issued an investor alert about fake regulatory agencies and phony consumer protection bureaus.
In 2004, the Massachusetts Secretary of the Commonwealth filed a fraud complaint against a firm called RJL International, which offered to pay investors up to 200 times the market price of their shares in exchange for returnable escrow payments of 20% of the purchase price. RJL used as their reference the International Public Shareholder Protection Service and International Trade Services. These phony "investigators" cited investigations with the FBI and Interpol involving "ongoing international terrorist threats" as their reason for not giving the pigeon any identifying information about the "regulator's" agency.
FLEECING THE PIGEON TWICE
Investors taken in this swindle are embarrassed, angry and prone to be vengeful. However, few victims file a criminal complaint or take other action against those who fleece them. Some swindlers are using these emotions and inertia to fleece the same victims a second time.
About two weeks after the pigeon realizes that they were taken - and always on a Saturday - their "savior" appears at their door. Well-dressed, driving what appears to be a Government vehicle and sporting a badge, business card and credentials, the "savior" claims to be from the FBI, SEC or Homeland Security. The "savior" has been investigating the swindlers and believes that they are funneling money to terrorists. He or she needs the victim's help to catch the swindlers and save America from another 9/11 attack. What the "savior" asks of the victim, coating the request in the American flag, apple pie and motherhood, is that the victim "lends" the agent seed money to trap the swindlers. The amount requested is usually $50,000 - $75,000 and has to be wire transferred early Monday morning to the Agency's overseas bank account. Wire transfer instructions are left with the pigeon and the victim will never see the "investigator" again. If the pigeon sends the money, the same group of swindlers has taken the pigeon twice.
INTEREST BEGINNING YOUNG
My interest in sting operations started in the 3rd grade. I replied to a "Popular Mechanics" classified ad that offered to send me "a guaranteed bug killer for just $1." I sent my money. The swindlers sent me two pine boards, 3 inches x 2 inches x 0.25 inches with these instructions, printed on a 3 inch by 2 inch piece of paper. "Place bug between boards and clap." Since then, I've been interested in understanding the swindle, without sending anyone my dollar. My lifetime hobby has allowed me to make a little money in the market and advise governments, banks, brokerage firms, fund managers and investors on fraud-related offers. It's a hobby that more investors should adopt.
About the author: He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/] You can email Mr. Cate at: Beowulfinvestments@Earthlink.net