On his excellent finance blog, JL Collins lists the five laws of con, reproduced here with my commentary:
1. EVERYBODY can be conned.
Even me. Even you. Those who think they are at no risk, are at the highest risk because they will be complacent.
2. You are likely to be conned in an area of your expertise.
Given Law 1, it makes sense, right? You’ll think yourself an expert and let your guard down. The art curator being sold a painting or the mechanic being sold a car should be especially cautious.
3. Con men (and women) don’t look like con men.
They might seem nice, easygoing, not pushy at all. If scam artists came across as dodgy they’d be out of business.
4. 99% of what they say will be true.
Make sure you check 100% to find that one vital detail.
5. If it looks too good to be true, it is.
There’s no such thing as a guaranteed 10% return. Do not mock the gods of finance.
Read the post for concrete examples of these laws in action. The blog is no longer updated but the archives are a rich source of knowledge.
JL links to this incredible story of a finance professional who very, very almost fell for a $10 million scam. It’s quite a tale.
Following is an extract on scams from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual for Building Liberating Wealth on a Low to Medium Income:
Here are a few things to watch out for in addition to junk bond scams, especially when attending a seminar about investment.
1. Seminars which claim that you need to fill out an application to get into the seminar, making it seem like some exclusive event only for the elect. In fact, this ‘application’ might be a contract that locks you in to things you never understood. Read it carefully, never put your credit card number on such a form, never sign anything you don’t understand, and always sign slowly anything that someone is pressuring you to sign quickly.
2. Watch out for events or schemes endorsed by celebrities. This is a common sign of trouble. What exactly does your favorite Korean soap opera star know about finance, anyway?
3. There is no urgency. You don’t have to invest in anything in the next 46 seconds. In almost all cases, if it is a good investment, six months from now would also be fine. Take your time, get advice, and don’t let anyone pressure you into signing up for, or investing in, anything in a big hurry.
4. Promises of unrealistic returns. As the cliché goes, ‘If it seems too good to be true, it probably is.’ There is no investment that will offer a risk-free, guaranteed return of 10% or more per year. The highest safe, fixed return you might get is around 5-6% if interest rates are high, and the highest fixed but risky return you might get is around 12%. Higher returns are possible on the stock market but these are extremely variable, not fixed, and they are risky. Anyone promising you more than that is a dirty liar, and you can tell him I said that.
5. Pyramid schemes. This is any scam that requires finding an infinite supply of new members to contribute their money in order to work. In its simplest form, you tell two friends to give you $100. They then each tell three friends to give them $100. You have $200, they have net $200. Then those friends go out and find four more friends to give them money, telling them this is a guaranteed way of everyone making $200 for nothing.
In reality, pyramid schemes are much more complex, but any system that simply takes money from Peter to pay Paul is not an investment, and will never work in the long run because you’ll eventually run out of new fools.
Some programs that involve selling items to your peer group, called ‘multi-level marketing’, might also qualify as pyramid schemes. I will not name names because those guys are litigious, but my worthy reader is advised to investigate these for himself.
6. Ponzi schemes. These are very similar to pyramid schemes, but they take the form of a mountebank pretending to invest your money for you and instead spending it on the high life, paying you a return only from the money coming in from new investors. He always gets exposed once he can no longer entice any new money to come in or when too many people want to get their money out at the same time. The most infamous Ponzi scheme in recent times was run by Bernie Madoff.[i]
6. Crooks and fakes. Check up on the presenter or shill – has he or she ever been convicted of a criminal offense or been barred from being on the board of a company or from selling certain financial products? A quick web search will help you to check.
Are your presenter’s qualifications and/or certifications legitimate? Again, the internet makes this quick and easy to verify.
Unfortunately, we are only scratching the surface of the scams out there. This section was inspired by an article on Tom Antion’s public speaking site.[ii]
There will be more about seminar scams in the section on real estate.
The more you read about scams, the better. Here’s a handy explanation of the steps involved in a scam.
Let’s finish off with a couple of fun videos. These come from The Checkout on ABC, produced by The Chaser comedy team.
Also available on many other platforms.