Lotteries and Contest Scams

Year in and year out, lottery and contest scams are some of the most lucrative scams for conmen.  You may be told that you have won a large lottery or contest.  To further gain your confidence, you may even be told that the contest or lottery has been approved by the FBI or that the contest is sponsored by a big company with which you may be familiar, such as Clorox, a legitimate company whose name was used by scammers to steal money from unsuspecting victims.  Most of these lottery scams involve you having to pay various processing fees or even income taxes to the lottery sponsor.

TIP

It is hard enough to win a contest you enter, so you should be particularly wary when told that you have won a contest that you never even entered.  Legitimate contests and lotteries do not have processing fees that you have to pay and they do not collect income taxes from you.  The sponsor either would pay the taxes on your behalf or provide you with an IRS Form 1099 informing you of how much money was paid on your behalf to the IRS or you would be responsible to pay the IRS directly.  You would not pay the income taxes on the prize to the contest sponsor.

And beware of your winnings coming to you in the form of a certified bank check.  Unsuspecting victims have deposited these checks and waited for the check to clear before sending processing fees only to find that the check was a forgery and their own bank had only given them provisional credit for the check so that once it bounced, the victim not only lost the “winnings” but also the processing fees.

Natural Disaster Scams

Natural disasters, be they hurricanes, tsunamis, tornadoes, wildfires or floods are fodder for the most vile of scammers who take advantage of both the victims of these disasters and people who wish to make charitable donations to the victims of charities.  The scammers take advantage of those people already victimized by posing as government agency employees or insurance adjusters.  In the process of their interviewing the victims, they request personal identifying information, such as Social Security numbers and then use this information to make the victims of the natural disaster victims of the unnatural disaster of identity theft.  The scammers take advantage of people wishing to donate to the victims of natural disasters through phony charities.

TIP

If you are a victim, you must confirm the identity of anyone who contacts you purporting to be from a governmental agency or insurance company.  Do not give out any information until you have checked them out by contacting the actual agency or insurance company that they claim to represent.

As for charitable donations, go to www.charitynavigator.org and check out the charity to see if it is legitimate and while you are there, you may wish to check on the amount of the money gathered by the particular charity that actually goes toward their charitable purposes and how much goes to administrative costs and salaries.  A reputable charity should not pay more than between 25 and 35% to salaries and administrative expenses.  Additionally, if you are contacted by someone soliciting on behalf of a legitimate charity, you should be aware that as much as 80% of what is collected by professional charity solicitors goes to the actual charity for which they may be soliciting.  If you are inclined to donate to the charity, you may wish to consider donating directly to be confident that more of your donation actually is going to benefit the charity to which you wish to donate.

Affinity Fraud

We all tend to trust people who are just like us.  That is a truism.  With a knowledge of psychology that would make Sigmund Freud envious, conmen use that trust to their advantage.  Scammers know that once they have a potential victim’s heart and trust, their wallet soon follow.

We are experiencing an epidemic of fraud that targets particular nationalities, ethnic groups, racial groups, fraternal organizations and religious groups.  Religion related scams are particularly common.  Bernie Madoff was guilty of tremendous affinity fraud within the Jewish American community.  A scam artist may join a particular church, synagogue or mosque and gain the trust and confidence of the congregation by making a significant contribution to the religious organization.  But this is just see money.  Scammers often target members of a religious, ethnic, fraternal or other group that they appear to belong to and offer “special” investment opportunities that ultimately turn out to be worthless.

TIP

You should never trust anyone who asks you to trust him.  Always do your homework before you invest your money.  The endorsement of someone you know and trust is no substitute for real research into any investment.

Gift Card Scams

Gift cards are a convenient way to shop, but scammers steal the gift cards from the displays in stores and copy down or scan the information from the card.  Once they have done this, they return the card to the display.  Then the wait a little while and go to the company’s website to see if the card has been activated and if it has, they use the information they already have to drain your gift card.

TIP

Don’t buy gift cards from displays.  Always get one from behind the counter.

What is a Charity Scam?

Scammers are nothing if not enterprising and they will take advantage of the charitable impulses people may have following a natural disaster, such as the Tsunami in Japan or Hurricane Katrina to set up phony charities to separate you from your money.  Sometimes you may receive a telemarketer’s phone call soliciting for a charity.  It is important to remember that even if you wisely have put yourself on the federal Do Not Call List for telemarketers, the restrictions on calling do not apply to charities.  Regardless, you never know who really is calling you when you receive a telephone call purporting to be from a charity, so if you are charitably inclined toward that particular charity, all you have to do is just contact the charity directly at an Internet address or telephone number you know is accurate.  And never give out a credit card number to anyone on the phone whom you have not called and are sure as to who they are.

TIP

A good resource for not only determining if a charity is a scam or not, but also for learning how much of the charity’s funds are spent on administrative salaries and how much actually goes toward their charitable purposes is the free website www.charitynavigator.org.

Nigerian Letter

Although it may seem as if this scam only began in earnest with the invention of email, in fact, the scam itself is just a variation of a scam that is more than four hundred years old when it was called the Spanish Prisoner Con.  At that time a letter was sent to the targeted victim purportedly from someone on behalf of a wealthy aristocrat who was imprisoned in Spain under a false name.  The identity of the nobleman was not revealed for security reasons, but the victim was asked to help raise money to obtain the release of the aristocrat, who, it was promised, would reward the money-contributing victim with great sums of money and, in some versions of the con, the Spanish prisoner’s beautiful daughter in marriage.

In the more recent incarnations of this scam, you receive an email in which you are promised great sums of money if you assist a Nigerian in his effort to transfer money out of his country.  Other variations include the movement of embezzled funds by corrupt officials, a dying gentleman who wants to make charitable gifts or a minor bank official who is trying to move the money of deceased foreigners out of his bank without the government taking it.  Similar scams have managed to keep up with the news by having the money to be moved tied to fallen dictators such as Sadaam Hussein or Moamar Khadaffi.

What all of these scams have in common is that soon after agreeing to help, you learn that money is needed to be sent by you for lawyer fees, bribes, insurance and other costs.  The reward is always just around the corner and the fees keep mounting.

TIP

There are a number of ways to confirm that the email you are receiving is a scam including a careful review of the email address, however, you do not need to even go that far in your considerations.  Although you may want to open the email (so long as you do not click on to any links) for sheer entertainment purposes, all of these scenarios are scams.  Just ask yourself, why are you being singled out for this email?  You are not.  The emails are sent out all over the Internet.  Don’t be a victim.  Do not respond to the email in any fashion.  If you do, you will be hounded.

What is a Pyramid Scheme?

This is another scam that has been around for many years, but keeps popping up and scamming unsuspecting victims taken in both by their lack of skepticism and the abundance of greed, which is a profitable combination for scam artists.

Pyramid schemes are disguised as purported businesses; however, if you carefully evaluate the business you will see that the primary source of profit for the business is in enrolling new members who pay fees to join the business.  The only profit for investors comes from brining more people into the scheme.  In other words, the only way you can make a profit is by becoming a scammer yourself.  Like the chain letter, pyramid schemes are doomed to failure because eventually you run out of people to sustain the growth of the pyramid.

As with many scams, it does have some resemblance to how multi-level marketing companies such as Mary Kay Cosmetics and Amway operate; however, a key difference is that these companies actually sell products.  Pyramid schemes do not.

TIP

A little common sense can go a long way in avoiding pyramid schemes.  The simple question to ask yourself is whether or not the company actually sells products and makes substantial profits through product sales or through the recruiting of new members.  If it is through recruitment, it is most likely a pyramid scheme.  And don’t trust any letters from the IRS or the FTC that appear to support the legitimacy of the company.  Neither the IRS nor FTC ever issues such rulings.   If the operator of the business provides such a letter to you, you can be sure that it is a scam.