Tag Archives: Fraud Prevention


Historians record the earliest known commercial fraud as that of Xenothemis and Hegestratos, who arranged to deliver a shipload of corn to buyers in Athens, planning in advance to sink an empty ship, then claim payment for the corn. The buyers, unaware that the ship was devoid of its load, became an early mark for insurance fraud.

Xenothemis and Hegestratos had not counted on the ship’s other passengers, who they planned to also sink with the imaginary corn, finding fault with the plan. When the scheme was uncovered, the passengers quickly identified alternatives, the least offensive of which was sending Hegestratos to the briny deep with his imaginary load.

The story, though ancient, is by no means the earliest commercial fraud. One need only look to the pages of Genesis to find accounts of commercial fraud that are centuries older. Genesis 29:16-25 describes a classic “bait and switch” that serves as a model for all such scams. After striking a deal to win his beloved Rachel, Jacob honored his contract with Laban, only to find himself wed to Leah. Strange things happen in the dark.

Every thief knows that. Conversely, fraud prevention starts with shining bright lights into dark corners. Crooks hate that. Like Hegestratos’ phony corn, and Laban’s phony plan, the scam artist can be undone by asking hard questions, and imposing even harder conditions.

Take, for example, commodities scams.

The Setup

A gold merchant reaches through your mail, your radio, your television, or your telephone to persuade you that the world is facing economic chaos, in which all investments, including stocks, bonds, cash, houses, and everything you value, will plummet, leaving you destitute. But some will prosper – the wise few who have traded their worldly wealth for gold. When all else fails, they tell you, gold will reign supreme.

Indeed, their charts and graphs and busy digits serve only to confirm that the end is already in sight, and gold is soaring. But for a limited time, and a limited time only, you can get in on the last of the truly great deals – gold at a fraction of its price. With fever mounting, you call the convenient (800) telephone number.

The Proof

Your call will be followed by massive amounts of mail, “proving” the value of the investment. Brochures, flyers, and slick printed documents invariably depict mounds of precious gold coins to fire the blood. If that is not enough, the mail will be followed by telephone call after telephone call alerting you to the desperate need to act now. Charts will show the heady stuff climbing to such heights that it is out of reach for all but the wealthiest few.

The Hook

If you act now, you will receive, free of charge, a gold coin, or a silver dollar that George Washington threw across the Delaware, or the original widow’s mite, or some other ancient “find” that has just been discovered in a cache in some dark hole. But there are only 100 such treasures that will go to the first 100 callers.

The Sting

The price of the investment is inordinately greater than its value. The likelihood of it ever achieving the towering heights to which it is pitched are remote in the extreme. Gold coins sold at a 300% markup are not uncommon. Many a buyer is stuck with an “investment” that will never mature.

When the buyer realizes that the investment was little more than a heavy paperweight, the scam is completed, and the damage is done.

How can I avoid the scam?

Remember Hegestratos’ corn, and Laban’s daughter. Strange things happen in the dark. Shine light on the issue. Ask hard questions. What do independently researched investment journals say? How does gold compare to other available investments? Who is this seller? What information is available about the seller by organizations such as the state Attorney General, or the Better Business Bureau, or FINRA?

Impose hard conditions. For example, any coins purchased must be independently escrowed pending independent appraisal, with no money transferring hands until the conditions are satisfied. When faced with such conditions, the scam artist will slink away to find an easier “mark”.

As every youngster knows, when you turn over a rock, the vermin scramble for cover. Turn over the rocks, and do not allow the vermin to hide from scrutiny. In so doing, you will quickly sink Hegestratos, his phony corn, and a shipload of baloney.

Copyright © Gregory D. Lucas 2014

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If you are following this Primer, you have learned the following tricks to avoid fraud:

(1) Is the deal too good to be true? If so, walk away.

(2) Are you being pressured to act now? If so, walk away.

(3) Are you being asked to make an advance payment? If so, the warning lights are going off. Are you being told the payment must precede the benefit? If so, walk away.

(4) Are you required to pay by: cash, postal money order, wire transfer, Green Dot MoneyPaks, or any other method that is untraceable and irreversible? If so, walk away.

(5) Finally, when in doubt, walk away.

Advance Fee Schemes

Today we will focus on a traditional “oldie, but nasty” scam, the “Advance Fee Scheme”.

The Setup

The scheme usually starts with a story. Someone tells you that they are in a dilemma, and they need your help. They are in a situation in which they control a massive sum of money in a foreign country, but cannot personally access the funds for some official reason beyond their control. That is where you come in. They need to send the funds to you as a third party. Once you have the funds, you will be permitted to retain a large percentage of the money, sending the difference to them, or to some other third party.

The Proof

The story always includes a substantial amount of impressive documentation, signed by important and highly placed people, sealed with official seals, on government letterhead, with bank statements showing massive bank balances, contracts, promissory notes, letters from major corporations, bills of lading, trade agreements, wire transfers, and irrevocable letters of credit. Of course, all the documents are fraudulent.

The Hook

You will be notified that all of the money has been wired to you, but that it got held up at a major bank, usually in New York. There is a snag that must be overcome to have the money released to you. There is a small transfer fee, or duty, or an import tax that must be paid in order to obtain final release of the funds. In addition, they need additional information from you for tax reporting and identification purposes, such as account numbers, routing numbers, social security numbers, date of birth, or your mother’s maiden name. The bank, after all, must forward appropriate forms to you.

The Sting

Having given over all of your personal information, and having paid whatever sums were required to have the vast sums of fictitious money released to you, you have just become another victim. The thieves are long gone, with your money in their pockets, and a smile on their faces.

How can I avoid the scam?

The only way to avoid the scam is to see it for what it is long before the thieves set the hook. Apply the rules shown above.

(1) Is the deal too good to be true? The first notice will invariably attempt to suck you in by the huge pot of gold at the end of the rainbow. It is always too good to be true.

(2) Are you being pressured to act now? Usually, the pressure to act does not occur until the alleged funds are in transit to you. If hundreds of millions of dollars are waiting for you, and the only thing holding them up is your $80,000 check, if the thieves do not pressure you, you will undoubtedly impose pressure on yourself to get the deal done.

(3) Are you being asked to make an advance payment? There will always be money you must pay, or the deal goes away. The smarter crooks will save the hook for the very end.

(4) Are you required to pay by: cash, postal money order, wire transfer, Green Dot MoneyPaks, or any other method that is untraceable and irreversible? Thieves will invariably require that money be sent in irrevocable and untraceable form. They, in turn, will hide behind national boundaries, preferably with countries that have no trade agreements with the United States. Your efforts to undo what was done will always be futile.

(5) When in doubt, walk away. Reasons for doubt always exist in the first communication. When you receive such offers, do not respond.

For those prudent enough to follow this counsel, congratulations. You win!

Copyright © Gregory D. Lucas 2014

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From time to time, the world provides sharp reminders that life can be ugly. For every fulfilled longing to achieve the American dream, there is at least one leech devising ways to strip the dream away. We cannot stop the world from producing scam artists. They hide under every rock. But with a little information, and a fair degree of discernment, one can at least make their work a lot more difficult and a lot less fruitful.

As technology becomes more sophisticated, scam artists invariably find ways to keep pace. But there are commonalities that are dead giveaways of an impending scam. Knowing the signals is always the first step to uncovering the fraud.

At birth, we were each given an implanted piece of equipment with batteries that last a lifetime. The best fraud detector on earth is the human gut. It has infinitesimal sensitivity, and is almost always accurate – provided the bearer learns to use it. Like a fine piano, it is usually in tune. The problem, of course, is that its use requires frequent disciplined practice, and the bearer must learn to correctly interpret the output.

The gut usually discerns if something is wrong. If it feels wrong, it probably is wrong. Every scam artist understands that, and knows that to be successful, they must overcome those natural defenses. They know that there is one certain way to insure that our internal equipment will never work: they persuade us turn it off. For that reason, every scam is designed to overwhelm us with data suggesting that the opportunity is so vastly greater than the risk that we stop listening to the gut.

How do they do that?

They start by overpowering us with deals that are too good to be true; with empty promises and guarantees supported by vapor, all tied to the requirement that we act now, without stopping to think, without seeking a second opinion, without passing go, and without collecting $200. The time pressure to act, and the risk of losing the “prize”, keeps us emotionally vested in the process. They cap the fraud off with the illusion that we are the ones in ultimate control.

By focusing on the enormity of the opportunity, while distracting us from the steady flashing warning signals, we persuade ourselves to short-circuit the gut; to turn it off.

The solution? Learn to listen. Tune out the opportunity. Tune out the arbitrary deadlines. If a deal is genuine, there is always time to get it right; to perform due diligence; and to get good counsel. If the deal is false, no crook will hang around long enough to learn the outcome of the due diligence.

Consider the plight of the wary bass. If it doesn’t bite something, it goes hungry. If it bites the wrong thing, it will find a nasty hook in the bait. The prudent bass will slow down, study all the angles, and determine the full nature of the bait. Then, only if the bait is right, the bass will test its authenticity.

The sly fisherman, who understands that instinctive caution, draws the bait away, such that if the bass does not act now, the opportunity is lost. (There is a reason it is called a “lure”.) The bass has a choice: let the target of opportunity pass, and live to swim another day, or strike fast without thinking before the bait is gone.

Like the bass, a primal urge induces us to strike fast. Every thief, and every marketer, understands that. And like the experienced fisherman, they draw the bait away to trigger the strike response. The bait is everywhere. “For a limited time, and a limited time only.” “For 2 days only.” “Sale ends today!” “While supplies last.” “First come, first served.” Some of those come from legitimate businesspeople selling needed goods and services. Some do not.

How can you tell one from the other?

First, ask yourself if the deal is too good to be true. If it is, let it go. If it is legitimate, another will pass by this afternoon. You will never regret the fraud that did not suck you in.

Second, evaluate the pressure you feel to act now. The greater the pressure, the more likely it is that a bottom-dwelling scum sucker is dangling it before you. Legitimate business opportunities virtually always provide the opportunity to conduct reasonable due diligence. If you must act now or lose the deal, lose the deal. You are no worse off by letting a good deal get away. You will be far worse off if you bite the thief’s hook.

Third, ask if you must make an advance payment of any kind. If so, walk away. Consider this, if you buy a bag of plums from your grocer, you pay and receive the benefit in the same exchange. Although thieves offer to do the same, you will not learn that the plums are paper maché until the deal is done and the thief is long gone.

Fourth, evaluate how you are asked to pay. There are certain clues that an offer may be fraudulent. If you are required to pay by cash, postal money order, wire transfer, Green Dot MoneyPaks, or any other method that is largely untraceable and irreversible, don’t bite. Let some other unfortunate bass take the bait.

You do not have to lose. Listen to the warning signals. If something feels wrong, it most assuredly is wrong. The simple corollary is that if something feels wrong, the opportunity is non-existent. If there is no opportunity, there is no reason to consider the scam. Result? You win.

I hate it when the bad guy wins. Don’t let the victim be you.

Copyright © Gregory D. Lucas 2014

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To Catch a Catphish

To almost all, we extend our greetings for a pleasant and romantic Valentine’s Day. But not for all. Valentine’s Day is not just the time for pink hearts, flowing ribbons, flouncy cards, and chocolate. It is also a time for the proverbial “catphish” to prey on the unsuspecting victim of love. For my fellow Southerners, I am not referring to the tasty fried denizen of the deep that goes well with hushpuppies. I am referring to the slimy scum suckers who prey on the innocent, pretending to be someone they are not in order to pluck the heartstrings as they plunder the purse strings.

You know who you are. Your anthem looks something like this:

“Song of the Catphish”
(With apologies to Robert Frost)

The scum is slimey, as I am,
But I have paramours to scam,
And many yearning loves to spam,
And many yearning loves to spam.

For those less familiar with the species, the catphish is not found in dark, deep ponds, but in chat rooms, social internet sites, and dating websites. You do not fish for catphish. They fish for you. Like a wriggling worm, they disguise themselves using every form of deception to win your affections and your trust, never letting on that a barbed hook lies within. They court you, and charm you, even relying on pity, patriotism and guilt to manipulate you into making decisions you will regret.

And when, at last, you nibble the bait, they set the hook.

Like their distant but more respectable catfish cousins, catphish are bottom feeders. They seek emotionally susceptible targets of opportunity, the elderly, the young, the emotionally fragile, those yearning for love.

They insist on remaining out of sight. All communications with them will be by e-mail, cell phones, text messages, or untraceable letters. Circumstances will always place them out of reach. They may be overseas, or in prison, or in the military. Meeting for coffee is out of the question. Part of their charm, in fact, is their unavailability.

They may be destitute, dying of cancer, or some other curable disease. Death will usually be avoidable if only they could afford a surgery. They may be healthier specimens, whose distant mother is dying. Her last request is to see her only son; but alas, the son cannot afford to travel to her side. They may be facing a sudden emergency, and need financial help, having no one else to whom they can turn for aid. They may be desperate to come to the side of the lovelorn to render solace, but without the means to do so.

The stories vary as widely as the creativity of the species of catphish at issue, but they all have a common thread: they play on an emotional string, coupled with a financial need they cannot satisfy. The one who comes to their aid will win their undying love. Enter the barbed hook.

Just as Paganini wrote variations on a theme, so the catphish will create a potentially infinite number of variations to bypass the radar of the wary. If you plead poverty, they will find someone to send a cashier’s check, or a postal money order to your account, provided that you are willing to transfer the funds to them. Of course, your transfer must be by wire. Their funds are fraudulent; yours are genuine. And as the catfish can deliver a stinging blow, so the catphish will deliver its financial poison.

Then, having stung its victim, the catphish descends into the muck from which its rose, only to seek its next victim.

So how do you beat the catphish? As my wife reminds me from time to time when I try to open a stubborn box, “You have to be smarter than the box.”

Gentle reader, you have to be smarter than the catphish. Don’t get sucked in. Don’t fall for that ever unseen love. And when you are tempted to send money to a stranger, ask your children if they mind you sending their inheritance to a faceless bottom dweller. The second opinion cannot hurt more than the impending theft.

If you think you are the victim of a scam, contact the Attorney General at 1-888-551-4636.

Copyright 2014 Gregory D. Lucas

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