The Christmas holidays are, unfortunately, a prime time for scammers and others who want to take advantage of your “good will”. The case of a recent financial planner in the Eau Claire area prompted a lot of people to ask the question: Would you have spotted the fraud?
According to Comparitech, a company that tracks fraud, they estimate that about 90,000 Americans lost money to investment fraud in 2021, with losses totaling almost 1.6 Billion Dollars. While that sounds like a large number, the average amount lost per scam was slightly more than $15,000.
The financial planner in question had been charged with various financial crimes including defrauding investors, and ultimately pled guilty and was sentenced to Federal Prison.
The nature of this type of fraud, is that the fraud tends to be well packaged, or in other words smooth, believable, and from a trusted source.
In this case, with the benefit of hindsight, we know some of the things that this financial planner did. These included overstating the returns on the investments, so that it looked like they were doing quite well, or convincing people to surrender one type of financial product (such as an annuity, or life insurance, or long term care insurance) with the promise of being sold a product that was superior and better investment.
So how did he do it? For one thing, he prepared or revised statements that made things appear things were being provided directly from the insurance company, investment firm, or annuity. He would alter things such as the interest rate, rate of return, or the like, to make them appear to be better than they were. He told people that, for example, that a long term care policy would provide better coverage than it really did, or that it was far superior than an existing long term care product they are already had, and the like.
So how could you spot the fraud? Here are a few suggestions:
If a product is being touted as “too good to be true” it ought to raise suspicions so that you at least try to confirm independently that the product you are buying will perform as claimed.
Don’t rely solely on the representations of the person selling the product; do your own research by independently seeking out information on the company or product being touted. In this day and age with the internet, it’s pretty easy to do. The financial planner in this case doctored some of the forms that he was giving to clients; again, do your own independent research to confirm what he is selling and what you are getting.
In other cases, examples of how the fraud was committed included:
Requesting advanced fees up front, with getting nothing in return
Misappropriation, essentially theft
guaranteed returns” which don’t pan out.
In another article we will talk about some other common examples of these types of fraud and what you can do to protect yourself.