13 Consumer Fraud Flashcards
(32 cards)
Boiler rooms, fronters, closers, and verifiers are all terms associated with which of the following?
A. Financial institution fraud
B. Bribery and corruption
C. Telemarketing scams
D. Money laundering
C. Telemarketing scams
Terms in the telemarketer’s vocabulary include banging, or nailing, the customer (i.e., closing the deal), as well as the following:
* Boiler room staff—Work in a boiler room is shared by fronters, closers, and verifiers.
* Fronters—The fronter calls victims and makes the initial pitch. This low-level worker is usually breaking into the business and reads from a script to the prospective customer. Fronters seldom see the merchandise or know the full extent of the operation, which potentially limits what they can tell investigators and protects them in the event of prosecution.
* Closers—The closer is a veteran. Fronters pass an interested caller to their closer, identified as the firm’s “manager,” who convinces the person to buy.
* Verifiers—Next, the caller is passed to a verifier, who reads some vague words about the deal and records the person’s agreement. These recordings are intentionally vague, leaving out the pitch and key details—essentially recording only the customer’s consent. Verifiers also stall customers who call back to complain (heat calls), finding reasons why a little more patience will solve the problem, and in some cases, convincing the person to send a little more money to help the process along.
In credit repair scams, the fraudster promises to “erase” or “doctor” an applicant’s credit history, but in reality there is no way to erase bad credit.
A. True
B. False
A. True
Similar to loan scams are those that promise to repair credit. Pitch men like to say that they can “wipe away,” “doctor,” or “cosmeticize” negative items on credit, insinuating they have ways of changing or disguising a person’s credit history. Despite the fact that there is really no way to erase bad credit, many people fall for this scam, paying large sums of money to expunge their records.
Which of the following are signs that a multilevel marketing organization’s activities might be illegal?
A. The organization offers participants large payments for each new recruit
B. The organization spends more time promoting its distributor levels than its product lines
C. The organization recruits distributors into a pyramid-style compensation plan
D. All of the above
D. All of the above
As a general rule, any organization that recruits distributors into a pyramid-style compensation plan, offers big payoffs for recruiting, and spends more time extolling its distributor levels than its product lines is probably illegal.
Unscrupulous debt consolidation schemes include each of the following EXCEPT:
A. The debt consolidation company guarantees the debtor will receive a loan or credit card regardless of the debtor’s credit ratings
B. The debt consolidation company writes a letter to the debtor’s creditors and arranges a payment plan.
C. The debt consolidation company charges an upfront processing fee and then disappears
D. The debt consolidation company collects payments, but does not appropriately forward them.
B. The debt consolidation company writes a letter to the debtor’s creditors and arranges a payment plan.
Unscrupulous debt consolidation schemes often involve the agency collecting the money from the debtor but not forwarding it to the creditors. In some instances, considerable time can pass before the debtor finds out that his money has been misappropriated. Another variation of the debt consolidation scheme occurs when customers are guaranteed that they will receive a loan or a credit card regardless of their credit rating. Typically, the victims have been rejected by legitimate financial institutions because their credit ratings are poor. The victim must pay a processing fee for the application to be accepted. After the victim pays the fee, the con artist disappears.
All organizations with a pyramid structure are illegal.
A. True
B. False
B. False
Not all organizations with a pyramid structure are engaging in illegal activity. Some legitimate merchandising companies use a pyramid structure to rank their employee-owners and to determine those people’s compensation. A pyramid structure becomes an illegal pyramid scheme when the recruitment of new members takes precedence over the product or service that the company is ostensibly promoting. The more members that are recruited, the higher the investor is purported to rise in the ranks of the enterprise, and the more money the investor is supposed to make.
In a telemarketing scam, the person who reads vague words about the deal and records the victim’s agreement is known as the:
A. Fronter
B. Closer
C. Verifier
D. None of the above
C. Verifier
The caller is passed to a verifier, who reads some vague words about the deal and records the person’s agreement. These recordings are intentionally vague, leaving out the pitch and key details—essentially recording only the customer’s consent. Verifiers also stall customers who call back to complain (heat calls), finding reasons why a little more patience will solve the problem, and in some cases, convincing the person to send a little more money to help the process along.
In a/an _____________ scheme, the company that initially conned a consumer contacts that consumer and offers to help retrieve the lost money. However, the investigation requires an upfront fee and the consumer is swindled again.
A. Scavenger
B. Advance-fee
C. Double-hustle
D. Retrieval
A. Scavenger
The scavenger or revenge scheme involves the company that initially conned the consumer. Using a different company’s name, the outfit contacts the consumer again and asks if he would like to help put the unethical company out of business and get his money back. Naturally, an upfront fee is required to finance the investigation.
Carl has just received a call from his credit card company alerting him that his identity might have been stolen. After checking with a credit bureau, Carl discovers several lines of credit that have been opened without his knowledge. Which of the following measures should Carl take going forward to reduce the chances of this happening to him again?
A. Ensure that any credit applications he receives are shredded
B. Change his PIN codes and passwords on a regular basis
C. Regularly obtain a copy of his credit report
D. All of the above
D. All of the above
There are a number of things people can do to help protect themselves from identity theft. These include:
* Before providing personal information, make sure the individual or business requesting it has a valid reason for requiring the information.
* Never write your credit card numbers or government identification number on checks or on the outside of envelopes.
* Don’t give out account numbers over the telephone or to persons/companies with which you are not familiar.
* Keep all financial documents in a secure place.
* Obtain a copy of your credit report on a regular basis.
* Shred pre-approved credit applications.
* Have yourself taken off of pre-screened lists.
* Mail bill payments from the post office or your business location.
* Keep your birth certificate in a safe place.
* Choose passwords that are difficult to figure out, and use different passwords for all accounts.
* Change passwords and PIN codes often.
* Don’t put your government identification number on any document that you are not legally required to.
A favored device of phony charities is to send school-age children door to door to say that they are raising money for antidrug programs or for a group that takes underprivileged kids on trips.
A. True
B. False
A. True
A favored device of phony charities is to send school-age children door to door to say that they are raising money for antidrug programs or for a group that takes underprivileged kids on trips. Some of the children repeat what they are told in exchange for a few dollars. Others believe they will receive rewards and free trips when in fact they, too, are being scammed.
A Ponzi scheme can best be described as an illegal business structure that might offer merchandise or services, but generates almost all of its revenues from the relentless recruitment of new members.
A. True
B. False
B. False
A Ponzi scheme is generally defined as an illegal business practice in which new investors’ money is used to make payments to earlier investors. The investment opportunity is typically presented with the promise of uncommonly high returns. While the scam is presented as a legitimate investment, there is little or no actual commerce involved.
In contrast, an illegal pyramid scheme is unique in that the more members that are recruited, the higher the investor is purported to rise in the ranks of the enterprise, and the more money the investor is supposed to make.
Maria, a successful restaurateur, has been informed of an unusually attractive investment opportunity by a recent acquaintance and decides to invest in it. Several months and a couple of underwhelming payments later, Maria grows frustrated with the diminishing disbursements and attempts to withdraw her money. After several weeks of delay, she realizes that the promoter seems to have vanished, along with her investment. Maria is the victim of which of the following fraudulent ploys?
A. An illegal pyramid
B. A fly and buy scheme
C. A Ponzi scheme
D. A dog and pony scam
C. A Ponzi scheme
A Ponzi scheme is generally defined as an illegal business practice in which new investors’ money is used to make payments to earlier investors. The investment opportunity is typically presented with the promise of uncommonly high returns. While the scam is presented as a legitimate investment, there is little or no actual commerce involved. When an enterprise promotes an investment opportunity that invests little or none of the participants’ money and uses new investments to make dividend payments, the promoters are running a Ponzi scheme.
The type of fraud that targets groups of people who have some social connection, such as neighborhoods of racial minorities or immigrant groups, is known as:
A. Reloading
B. Affinity fraud
C. Consolation
D. None of the above
B. Affinity fraud
Affinity fraud targets groups of individuals who have some social connection. Neighborhoods chiefly populated by racial minorities, especially immigrant groups, are often the site of affinity frauds. Religious and professional ties are often exploited.
A confidence scheme designed to part victims from their money by falsely promising the future delivery of a product or service in exchange for an upfront payment is called a(n):
A. Scavenger scheme
B. Bait and switch
C. Advance-fee swindle
D. Home-based business scheme
C. Advance-fee swindle
Advance-fee swindles are structured to obtain an illegal gain by falsely promising the delivery of a product or service. In some schemes, the product is marketed to a large number of customers, and then the operation is shut down prior to the delivery stage. Common scenarios used to commit advance-fee scams include the following:
* A home improvement contractor requires pre-payment for materials.
* Notice of a supposed inheritance from an unknown relative is received.
* Various exorbitant fees are required prior to securing financial assistance or advice.
Real estate scams are easily recognized, as there is almost always an element of time pressure or “now-or-never” pitch from the perpetrator.
A. True
B. False
A. True
Real estate scams are easily recognized. There is almost always an element of time pressure, with the victims being convinced they are participating in a “once-in-a-lifetime, now-or-never” deal. The investors are led to believe there is no time to investigate the venture, and that if they hesitate, they will miss the opportunity to make a fortune. Promises of big profits for little or no involvement are a normal part of real estate scams. The investor is also misled into assuming he is being let in on a special offer or an exclusive deal by the promoter.
Which of the following is a common way identity thieves obtain personal information about their victims?
A. Sorting through trash
B. Using pretext calls
C. Shoulder surfing
D. All of the above
D. All of the above
A lot of information can be easily found and acquired by identity thieves without the victim realizing it. Identity thieves most commonly obtain information through:
* Sorting through discarded trash
* Shoulder surfing
* Searching through coworkers’ desk drawers
* Stealing incoming or outgoing mail
* Using an accomplice within the organization
* Soliciting identifiers through false job application schemes
* Checking utility companies, health clubs, and schools
* Examining certifications and licenses placed on workplace walls
* Using pretext, ruse, or gag calls
* Looking at rental and loan applications
* Consulting public records
* Using the Internet
Victims of confidence games are more likely to be organizations or businesses rather than individuals.
A. True
B. False
B. False
Confidence games involve a range of fraudulent conduct usually committed by professional “con artists” against unsuspecting victims. The victims can be organizations but more commonly are individuals. Con men usually act on their own, but they might group together for a particularly complex endeavor.
Telemarketing schemes target individuals, not businesses.
A. True
B. False
B. False
Telemarketing offenses are classified as consumer fraud, yet many businesses are affected by office supply and marketing services scams. The nature of phone rooms, the geographical distances between the perpetrators and their victims, and the resources and priorities of law enforcement agencies all make enforcement efforts difficult.
Which of the following is NOT considered to be a red flag of a Ponzi scheme?
A. An investment that promises extremely high or short-term returns with little risk involved
B. A financial manager who puts an unusual amount of pressure on investors to act immediately
C. An investment that has a history of inconsistent returns coinciding with fluctuations in financial markets
D. A financial manager who manages, administers, and retains custody of the investment funds
C. An investment that has a history of inconsistent returns coinciding with fluctuations in financial markets
Several red flags can help investigators uncover Ponzi schemes:
* Sounds too good to be true: If an investment sounds too good to be true, it probably is.
* Promises of low risk or high rewards: Promoters of Ponzi schemes typically promise implausibly high or quick returns with little risk. As all legitimate investments include some degree of risk, any guarantee that an investment will perform in a certain way is a clear signal that it might be part of a Ponzi scheme.
* History of consistent returns: Any firm that generates remarkably consistent returns regardless of market conditions should raise suspicions.
* High-pressure sales tactics: Reputable investment firms and agents do not push potential investors to act immediately, and legitimate investment opportunities are rarely that time sensitive.
* Pressure to reinvest: Often, fraudsters keep Ponzi schemes alive by convincing investors to reinvest their profits rather than take a payout.
* Complex trading strategies: Legitimate agents should be able to provide clear explanations about their investment strategies. For obvious reasons, Ponzi-scheme boosters purposefully employ complicated strategies that confound unsophisticated investors.
* Lack of transparency or access: Secrecy surrounding the operations of a financial company should be an immediate warning sign. Ponzi operators are often unlicensed and their supposed investments are typically unregistered. Additionally, a lack of access to regular statements or an online account should trigger alarm.
* Lack of segregation of duties: Investors should be wary of any financial manager who manages, administers, and retains custody of the fund in question.
Utility company, health club, and school records contain information that an identity thief can use to steal someone’s identity.
A. True
B. False
A. True
Utility company, health club, and school records all carry identifiers that a fraudster can use to steal someone’s identity. Government identification numbers are used on many applications and are instrumental in obtaining other information.
Other means by which identity thieves commonly obtain information include:
* Sorting through discarded trash
* Shoulder surfing
* Searching through coworkers’ desk drawers
* Stealing incoming or outgoing mail
* Using an accomplice within the organization
* Soliciting identifiers through false job application schemes
* Checking utility companies, health clubs, and schools
* Examining certifications and licenses placed on workplace walls
* Using pretext, ruse, or gag calls
* Looking at rental and loan applications
* Consulting public records
* Using the Internet
Glenn has just inherited a large amount of money from a deceased relative. Several weeks later, a colleague of Glenn’s suggests an investment in a security that is certain to generate returns of 20 percent every six months. Glenn is intrigued, but also worried that it might be a Ponzi scheme. Which of the following actions should Glenn take before investing?
A. Determine if the investment’s returns have been abnormally consistent
B. Ensure that he can comprehend the details and strategy of the investment
C. Find out if the financial manager is licensed and if the security is registered
D. All of the above
D. All of the above
Several red flags can help investigators uncover Ponzi schemes:
* Sounds too good to be true: If an investment sounds too good to be true, it probably is.
* Promises of low risk or high rewards: Promoters of Ponzi schemes typically promise implausibly high or quick returns with little risk. As all legitimate investments include some degree of risk, any guarantee that an investment will perform in a certain way is a clear signal that it might be part of a Ponzi scheme.
* History of consistent returns: Any firm that generates remarkably consistent returns regardless of market conditions should raise suspicions.
* High-pressure sales tactics: Reputable investment firms and agents do not push potential investors to act immediately, and legitimate investment opportunities are rarely that time sensitive.
* Pressure to reinvest: Often, fraudsters keep Ponzi schemes alive by convincing investors to reinvest their profits rather than take a payout.
* Complex trading strategies: Legitimate agents should be able to provide clear explanations about their investment strategies. For obvious reasons, Ponzi-scheme boosters purposefully employ complicated strategies that confound unsophisticated investors.
* Lack of transparency or access: Secrecy surrounding the operations of a financial company should be an immediate warning sign. Ponzi operators are often unlicensed and their supposed investments are typically unregistered. Additionally, a lack of access to regular statements or an online account should trigger alarm.
* Lack of segregation of duties: Investors should be wary of any financial manager who manages, administers, and retains custody of the fund in question.
A financial fund operator who insists that investors continually reinvest their profits, rather than take payouts, is a red flag of a Ponzi scheme.
A. True
B. False
A. True
Several red flags can help investigators uncover Ponzi schemes:
* Sounds too good to be true: If an investment sounds too good to be true, it probably is.
* Promises of low risk or high rewards: Promoters of Ponzi schemes typically promise implausibly high or quick returns with little risk. As all legitimate investments include some degree of risk, any guarantee that an investment will perform in a certain way is a clear signal that it might be part of a Ponzi scheme.
* History of consistent returns: Any firm that generates remarkably consistent returns regardless of market conditions should raise suspicions.
* High-pressure sales tactics: Reputable investment firms and agents do not push potential investors to act immediately, and legitimate investment opportunities are rarely that time sensitive.
* Pressure to reinvest: Often, fraudsters keep Ponzi schemes alive by convincing investors to reinvest their profits rather than take a payout.
* Complex trading strategies: Legitimate agents should be able to provide clear explanations about their investment strategies. For obvious reasons, Ponzi-scheme boosters purposefully employ complicated strategies that confound unsophisticated investors.
* Lack of transparency or access: Secrecy surrounding the operations of a financial company should be an immediate warning sign. Ponzi operators are often unlicensed and their supposed investments are typically unregistered. Additionally, a lack of access to regular statements or an online account should trigger alarm.
* Lack of segregation of duties: Investors should be wary of any financial manager who manages, administers, and retains custody of the fund in question.
Advance-fee swindles, debt consolidation schemes, and diploma mills are all examples of confidence schemes.
A. True
B. False
A. True
Confidence schemes involve a range of fraudulent conduct usually committed by professional “con artists” against unsuspecting victims. The victims can be organizations, but more commonly are individuals. Con men usually act alone, but they might group together for a particularly complex endeavor.
Some examples of confidence schemes include advance-fee swindles, debt consolidation schemes, directory advertising schemes, personal improvement frauds, and diploma mills.
What is the primary difference between a Ponzi scheme and a pyramid scheme?
A. A Ponzi scheme is promoted by encouraging victim members to recruit new members
B. A pyramid scheme promotes itself as a pyramid, whereas a Ponzi scheme promotes itself as an investment opportunity.
C. All pyramid schemes are legal, whereas all Ponzi schemes are illegal.
D. In a pyramid scheme, old investors are paid with money from new investors.
B. A pyramid scheme promotes itself as a pyramid, whereas a Ponzi scheme promotes itself as an investment opportunity.
The primary difference between a Ponzi scheme and a pyramid lies in how the operation is promoted.
Illegal pyramids announce themselves as pyramids: They hype levels or stages in their literature. The pyramidal structure helps draw new players, each believing that they will rise through the ranks of the pyramid.
A Ponzi scheme, on the other hand, masquerades as some type of investment—in financial instruments, mineral rights, or some other form of speculation. The participants believe they’re buying mortgage-backed securities or partial interest in an oil well. They have no idea they’re funneling money into the coffers of manipulative criminals. No one suggests moving on to the next level of the pyramid, because the pyramid isn’t part of the pitch.
A pyramid scheme is promoted by encouraging victim investors to recruit new members. The more members recruited, the higher the investor rises in the ranks of the enterprise, and the more money the investor is supposed to make.
A. True
B. False
A. True
In an illegal pyramid scheme, the more members that are recruited, the higher the investor is purported to rise in the ranks of the enterprise, and the more money the investor is supposed to make.
The difference between a Ponzi scheme and a pyramid lies in how the operation is promoted. Illegal pyramids announce themselves as pyramids: They hype levels or stages in their literature. The pyramidal structure helps draw new players, each believing that they will rise through the ranks of the pyramid. A Ponzi scheme, on the other hand, masquerades as some type of investment—in financial instruments, mineral rights, or some other form of speculation. The participants believe they’re buying mortgage-backed securities or partial interest in an oil well. They have no idea they’re funneling money into the coffers of manipulative criminals. Certainly no one suggests moving on to the next level of the pyramid, because the pyramid isn’t part of the pitch.
