Fort Lauderdale Securities Law Blog

The growing use of the Internet has created a plethora of new opportunities for fraudsters.  This post contains some tips for avoiding (1) Internet auction fraud, (2) non-delivery of merchandise and (3) credit card fraud.

Before entering into a transaction over the Internet, please consider the following.  Once a fraudulent transaction takes place over the Internet, it almost grows a life on its own, which takes a lot of time and effort to try and get control over again.

 Tips for Avoiding Internet Auction Fraud:

• Understand as much as possible about how the auction works, what your obligations are as a buyer, and what the seller's obligations are before you bid.
• Find out what actions the website/company takes if a problem occurs and consider insuring the transaction and shipment.
• Learn as much as possible about the seller, especially if the only information you have is an e-mail address. If it is a business, check the Better Business Bureau where the seller/business is located.
• Examine the feedback on the seller.
• Determine what method of payment the seller is asking from the buyer and where he/she is asking to send payment.
• If possible, purchase items on line using your credit card, because you can often dispute the charges if something goes wrong.
• Be cautious when dealing with sellers outside the United States. If a problem occurs with the auction transaction, it could be much more difficult to rectify.
• Ask the seller about when delivery can be expected and whether the merchandise is covered by a warranty or can be exchanged if there is a problem.
• Make sure there are no unexpected costs, including whether shipping and handling is included in the auction price.
• There should be no reason to give out your social security number or driver's license number to the seller.

Tips for Avoiding Non-Delivery of Merchandise:

• Make sure you are purchasing merchandise from a reputable source.
• Do your homework on the individual or company to ensure that they are legitimate.
• Obtain a physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.
• Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn't required to open the account.
• Consider not purchasing from sellers who won't provide you with this type of information.
• Check with the Better Business Bureau from the seller's area.
• Check out other websites regarding this person/company.
• Don't judge a person or company by their website. Flashy websites can be set up quickly.
• Be cautious when responding to special investment offers, especially through unsolicited e-mail.
• Be cautious when dealing with individuals/companies from outside your own country.
• Inquire about returns and warranties.
• If possible, purchase items on line using your credit card, because you can often dispute the charges if something goes wrong.
• Make sure the transaction is secure when you electronically send your credit card numbers.
• Consider using an escrow or alternate payment service.

Tips for Avoiding Credit Card Fraud:

• Don't give out your credit card number on line unless the site is a secure and reputable. Sometimes a tiny icon of a padlock appears to symbolize a higher level of security to transmit data. This icon is not a guarantee of a secure site, but provides some assurance.
• Don't trust a site just because it claims to be secure.
• Before using the site, check out the security/encryption software it uses.
• Make sure you are purchasing merchandise from a reputable source.
• Do your homework on the individual or company to ensure that they are legitimate.
• Obtain a physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.
• Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn't required to open the account.
• Consider not purchasing from sellers who won't provide you with this type of information.
• Check with the Better Business Bureau from the seller's area.
• Check out other websites regarding this person/company.
• Don't judge a person or company by their website. Flashy websites can be set up quickly.
• Be cautious when responding to special investment offers, especially through unsolicited e-mail.
• Be cautious when dealing with individuals/companies from outside your own country.
• If possible, purchase items on line using your credit card, because you can often dispute the charges if something goes wrong.
• Make sure the transaction is secure when you electronically send your credit card number.
• Keep a list of all your credit cards and account information along with the card issuer's contact information. If anything looks suspicious or you lose your credit card(s), contact the card issuer immediately.

Telemarketing Fraud #1:

There are two types of unsolicited communications that have the potential of causing serious adverse financial consequences on unsuspecting individuals, especially seniors.  One form of such communication is through the internet.  The other is an unsolicited telemarketing call.  This post relates to the later form of solicitation but many of the comments below can be applied equally to both.  

Your age does not make you immune from telemarketing fraud.  However, if you are age 60 or older-and especially if you are an older woman living alone-you may be a special target of people who sell bogus products and services by telephone. Telemarketing scams often involve offers of free prizes, low-cost vitamins and health care products, inexpensive vacations or get rich quick schemes such as buying precious metals using leverage.

There are warning signs to these scams. If you hear these-or similar-"lines" from a telephone salesperson, just say "no thank you," and hang up the telephone:

• "You must act now, or the offer won't be good."
• "You've won a free gift, vacation, or prize." But you have to pay for "postage and handling" or other charges.
• "You must send money, give a credit card or bank account number, or have a check picked up by courier." You may hear this before you have had a chance to consider the offer carefully.
• "You don't need to check out the company with anyone." The callers say you do not need to speak to anyone, including your family, lawyer, accountant, local Better Business Bureau, or consumer protection agency.
• "You don't need any written information about the company or its references."
• "You can't afford to miss this high-profit, no-risk offer."

Tips for Avoiding Telemarketing Fraud:

It's very difficult to get your money back if you've been cheated over the telephone. Before you buy anything or enter into any type of business relationship by telephone, remember:

• Don't buy from an unfamiliar company. Legitimate businesses understand that you want more information about their company and are happy to comply.
• Always ask for and wait until you receive written material about any offer or charity. If you get brochures about costly investments, ask someone whose financial advice you trust to review them. But, unfortunately, beware-not everything written down is true.
• Always check out unfamiliar companies with your local consumer protection agency, Better Business Bureau, state attorney general, the National Fraud Information Center, or other watchdog groups. Unfortunately, not all bad businesses can be identified through these organizations.
• Obtain a salesperson's name, business identity, telephone number, street address, mailing address, and business license number before you transact business. Some con artists give out false names, telephone numbers, addresses, and business license numbers. Verify the accuracy of these items.
• Before you give money to a charity or make an investment, find out what percentage of the money is paid in commissions and what percentage actually goes to the charity or investment.
• Before you send money, ask yourself a simple question. "What guarantee do I really have that this solicitor will use my money in the manner we agreed upon?"
• Don't pay in advance for services. Pay services only after they are delivered.
• Be wary of companies that want to send a messenger to your home to pick up money, claiming it is part of their service to you. In reality, they are taking your money without leaving any trace of who they are or where they can be reached.
• Always take your time making a decision. Legitimate companies won't pressure you to make a snap decision.
• Don't pay for a "free prize." If a caller tells you the payment is for taxes, he or she is violating federal law.
• Before you receive your next sales pitch, decide what your limits are-the kinds of financial information you will and won't give out on the telephone.
• Be sure to talk over big investments offered by telephone salespeople with a trusted friend, family member, or financial advisor. It's never rude to wait and think about an offer.
• Never respond to an offer you don't understand thoroughly.
• Never send money or give out personal information such as credit card numbers and expiration dates, bank account numbers, dates of birth, or social security numbers to unfamiliar companies or unknown persons.
• Be aware that your personal information is often brokered to telemarketers through third parties.
• If you have been victimized once, be wary of persons who call offering to help you recover your losses for a fee paid in advance.
• If you have information about a fraud, report it to state, local, or federal law enforcement agencies.

If you are reading this post after you have already become a victim of telemarketing fraud, we suggest that, in addition to contacting the authorities, you contact a qualified attorney.  In the short term, this will create the best opportunity for you to attempt to recover your losses. 

Reverse Mortgage Scams:

It seems that every time you watch TV or pick up the mail there is an advertisement extolling the benefits of a reverse mortgage.  But the benefits do not always outweigh risks.  As with all investments, you have to perform your own due diligence.  Also, it is important to make sure that a reverse mortgage fits within the frame work of your economic circumstances. 

Many U.S. government agencies and civic organizations urge consumers, especially senior citizens, to be vigilant when seeking reverse mortgage products. Reverse mortgages, also known as home equity conversion mortgages (HECM), have increased more than 1,300 percent between 1999 and 2008, creating significant opportunities for fraud perpetrators.

Reverse mortgage scams are engineered by unscrupulous professionals in a multitude of real estate, financial services, and related companies to steal the equity from the property of unsuspecting senior citizens or to use these seniors to unwittingly aid the fraudsters in stealing equity from a flipped property.

In many of the reported scams, victim seniors are offered free homes, investment opportunities, and foreclosure or refinance assistance. They are also used as straw buyers in property flipping scams. Seniors are frequently targeted through local churches and investment seminars, as well as television, radio, billboard, and mailer advertisements.

A legitimate HECM loan product is insured by the Federal Housing Authority. It enables eligible homeowners to access the equity in their homes by providing funds without incurring a monthly payment. Eligible borrowers must be 62 years or older who occupy their property as their primary residence and who own their property or have a small mortgage balance. 

Tips for Avoiding Reverse Mortgage Scams:

• Do not respond to unsolicited advertisements.
• Be suspicious of anyone claiming that you can own a home with no down payment.
• Do not sign anything that you do not fully understand.
• Do not accept payment from individuals for a home you did not purchase.
• Seek out your own reverse mortgage counselor.

Assessing Your Risk Tolerance!

One of the first factors that needs to be considered when thinking about making any type of investment is risk.  When it comes to investing, you need to remember that risk and reward go hand in hand. The phrase "no pain, no gain" - comes close to summing up the relationship between risk and reward. Don't let anyone tell you otherwise: all investments involve some degree of risk. If you plan to buy securities - such as stocks, bonds or mutual funds or even if you loan money to a friend - it's important that you understand that you could lose some or all of the money you invest.

The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you may make more money by carefully investing in higher risk assets, such as stocks or bonds, than if limit yourself to less risky assets. On the other hand, lower risk cash investments may be appropriate for short-term financial goals.

An aggressive investor, or one with a high risk tolerance, is willing to risk losing money to get potentially better results. A conservative investor, or one with a low risk tolerance, favors investments that maintain his or her original investment.

Many investment websites offer free online questionnaires to help you assess your risk tolerance. Some of the websites will even estimate asset allocations based on responses to the questionnaires. While the suggested asset allocations may be a useful starting point, keep in mind that the results may be biased towards financial products or services sold by companies or individuals sponsoring the websites.

With the above said, risk vs. reward is simply exercising common sense.  If you do your homework (due diligence), you should be able to make intelligent decisions.  If you don't understand the investment or it sounds to good to be true, just say no.