Category Archives: fraud

Cheque Over-Payment Scam

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The Cheque Over-Payment Scam is the main topic in the Canadian Banking Association Fraud Prevention Tip monthly newsletter just received.  Their Safeguarding Your Money web page has an e-mail link by which you can subscribe to the newsletter.

The cheque over-payment scam is also known as advanced payment fraud. The scam usually begins with a letter or e-mail asking for assistance cashing a cheque. The details behind the request may vary – some scammers may ask for help securing an unclaimed inheritance, others may name you a winner in a lottery you don’t remember entering or they may offer to buy something you are selling online or through a newspaper ad.

Regardless of the details, all will send a cheque, all will ask you to cash it in your own bank account, all will request a certain portion of the money be returned to the sender, and all will offer to let you keep the difference for your trouble.

An Australian government website details how the scam proceeds.

The scammer will invent an excuse for the overpayment. For example, the scammer might tell you that the extra money is meant to cover the fees of an agent or extra shipping costs. The scammer might just say that it was a mistake they made when they wrote the cheque.

The scammer will then ask you to refund the excess amount—usually through an online banking transfer or a wire transfer (such as Western Union). The scammer is hoping that you will do this before you discover that their cheque has bounced. You will have lost the money you paid into their account, and if you have already sent the item you were selling, you will lose this as well.

The RCMP warns that this scam is very prevalent at the moment:

Numerous complaints have been received recently of counterfeit cheques and the overpayment scam being used to entice sellers on online markets to accept these cheques as payment for items they are selling.

Perhaps the most surprising confirmation of this was an apparently genuine offer to buy tutoring services from me that has just ended as I write this post.  Lo and behold the final message from John Hill [[email protected]] of London read as follows (typos included)

Hello,
Thanks for your message. I would be more than happy if you can handle Paul, my son, very well for me because is all I have left ever since his mother died four years ago. Payment for the lessons will be made upfront like I told you and will be by Certified Cashier’s Cheque. In view of this I will need you to email me the information required to send the payment as I will not like to send the payment to a wrong location.

I have contacted my business associate that he should make my funds available in payment of some farm equipment I supplied to him. He assured me he would make the payment (Cashier’s cheque) available and send you the cheque. I also want to let you know that the payment is a bit more than the cost for the six month lessons. So please, as soon as you receive the check I will like you to deduct the money  that accrues to the cost of lessons and you will assist me to send the rest balance to my cousin. I would have asked my associate to issue two separate checks, one for you and the rest to my cousin but like I told you that my cousin is currently in europe with my son and will not be able to cash a check drawn from Canada bank. The remaining balance will cover the funds for Paul and my cousin’s flight expenses down to Canada, also to cover his living expenses over there and to buy the necessary materials needed for the lessons. I think, I should be able to trust you with the remaining balance? Am also ready to compensate you with additional $100 for the extra services you are doing for me. I will give you the details of my cousin that you will send the  balance of the money as soon as you receive the cheque. Here are some of the details I will need for final assurance of the payment to you.

Needless to say that was the end of that attempted cheque over-payment scam.

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Seniors Fall For Ponzi Schemes

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Seniors often have financial concerns as they contemplate their future and their perhaps dwindling assets.  If they rely on Social Security and state pensions, even those are questioned by some who liken them to a Ponzi scheme. The older members who are drawing out now are being paid out of a fund that is being refilled by contributions from younger members who hope they will find there is something they can draw on in the distant future.

It is all very concerning and is made much more worrying by the deep recession that only slowly may be receding.  Many seniors will be worriedly scratching their heads on whether they will have enough to live on, particularly if they are in good health and may have a long life.

Couple that with the many cases of Financial Abuse of Elders that was covered in an earlier post, and you end up with concerned seniors who are not sure who to consult.  Some financial abuse cases are perpetrated by the seniors’ sons and daughters or by other family members.  Who then to turn to?  If a trusted friend suggests a mature person whom they have confidence in, then this may appear less thorny than having to involve the family in your financial matters.

If that mature person gains your trust and confidence, then it may be only a matter of time before they are suggesting ways of investing where you can get better returns than the low interest rates the banks presently offer on savings.  Once on the hook, you may soon find that your goose has been cooked (to mangle metaphors).

It is probable that there are many more Ponzi schemes than actually hit the headlines.  Bernard Madoff was of course the biggest in history, but others have caused equal misery to many seniors.  Last month, we all learned of Earl Jones, the Montreal Ponzi Schemer, who preyed on family members and friends and lived the high life as their savings disappeared.

Last week, here in Vancouver we read that B.C. Ponzi schemers were found guilty of fraud:

Four British Columbia residents, Hal (Mick) Allan McLeod, Kenneth Robert McMordie (aka Byrun Fox), Dianne Sharon Rosiek and David John Vaughan, were ruled guilty of fraud for violating securities laws by a B.C. Securities Commission panel. They lied to investors about how their money was being invested, what they could expect as a return, and the risk level of these investments.  Their Ponzi scheme cost some 800 investors more than $10 million US.

Today the news is that a $50 million Ponzi Scheme Is Alleged in Detroit.

A class action suit in Federal Court claims  that John Bravata and Richard Trabulsy masterminded BBC Equities and Bravata Financial Group, which stole $50 million from hundreds of people in a Ponzi scheme, . They are said to have promised 8 to 12 percent returns in a real estate scam, guaranteeing “safer returns than other investment options,” according to the complaint.  They began by soliciting family and friends for money, then began holding “free lunch” seminars each week to target senior citizens. Half of BBC’s money allegedly came from IRA accounts.

In all these cases, the seniors are likely to see only a fraction of their original holdings.  This is financial abuse of the very worst kind.  The only safeguard is to seek financial counsel and advice from only reputable and knowledgeable individuals who will not benefit in any way from the impartial advice they may give you.

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Financial Abuse of Our Elders

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The shocking fraud perpetrated on unsuspecting seniors by Earl Jones of Montreal through his Ponzi Scheme is perhaps one of the worst examples of how vulnerable our elders are in these important matters.

There is a widely held view that financial abuse of our elders is reaching epidemic proportions.

Surprisingly the abusers are more often than not family members, friends, neighbors, and care givers. The recession is pushing more people to steal from their senior relatives. According to a report, “Broken Trust: Elders, Family, and Finances”, released by Metlife Mature Market Institute, seniors in the US are losing more than $2.6 billion every year through financial abuse.  The average victims are elderly women living alone. The sick and frail are more apt to be taken advantage of, and this applies even more to dementia patients. Some care takers in nursing homes are not above stealing from sick and demented patients.

Is Elder Financial Abuse the Crime of the 21st Century? That is certainly the opinion of Fred Joseph, president of the North American Securities Administrators Association.  He was quoted in a Washington Post article that focused on the link between the growing recession in the U.S. and the increase in elder financial abuse.  Though there may be debate about elder financial abuse as the ‘crime of the century’, there is no doubt that it is a mounting crisis in the U.S.

Financial abuse of elders can happen in a number of ways, according to the National Committee for the Prevention of Elder Abuse:

  • Forging an older person’s signature
  • Getting a senior to sign a deed, will, or power of attorney
  • Using property without permission.
  • Promising lifelong care in exchange for money or property – and not following through on the promise.
  • Using credit cards without authorization.
  • Engaging in confidence crimes (“cons’’) in which victims are scammed by gaining their trust.

They suggest that these red-flag warnings will help you spot financial abuse:

  • The senior is being encouraged to invest in unregistered securities or start-up companies
  • The investment is high-risk or speculative, such as rare metals or currency trading
  • The senior is asked to sign blank paperwork or to give discretionary authority over accounts to an adviser
  • The senior complains that an investment adviser won’t supply account statements
  • The senior makes out a check directly to the adviser or broker for the purchase of an investment

Here in Canada, earlier in the year, the Government launched a nation-wide advertising campaign called Elder Abuse – It’s Time To Face The Reality. The campaign launch on June 15, 2009 coincided with World Elder Abuse Awareness Day.  The Minister of State (Seniors), Marjory LeBreton confirmed that elder abuse cannot and will not be tolerated and that help is available.

There are a number of online resources on this subject

Here is an extract from the last resource:

What is the financial abuse of seniors?

Financial abuse refers to the misuse of a senior’s money, property or other assets by a relative or a person in a position of trust. A relative may be a spouse, sibling, or child, and a person in a position of trust may be a neighbour, home care worker, or staff person in a care facility. Financial abuse by strangers is not included in this fact sheet.

Some examples are:

  • Forcing or tricking a senior into selling his or her property
  • Stealing money or personal possessions
  • Forcing a senior’s signature on pension cheques or legal documents
  • Misusing a Power of Attorney
  • Pressuring a senior to provide services for no payment

Financial abuse is one type of elder abuse and it is sometimes referred to as material abuse. Financial abuse IS a crime. Often when seniors are financially exploited, they are subject to other forms of mistreatment, such as physical or psychological abuse or neglect.

How widespread is the problem?

As with other types of elder abuse, it is difficult to determine the extent to which seniors are being financially abused in Canada. This difficulty arises primarily from a failure to recognize or acknowledge that financial abuse is occurring.

Given the increasing incidence of such financial abuse of our elders, it is incumbent on us all to look out for our senior friends and family members to ensure that unwittingly they do not become victims of some smooth-talking fraudster.

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Earl Jones, the Montreal Ponzi Schemer

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It may not be on the billions of dollars scale of Bernard Madoff but Earl Jones of Montreal seems to have turned from a ‘charming’ family man to an even greater ‘monster’ who allegedly defrauded 130 clients of between $50 million and $100 million.

Earl Jones seemed like the kind of guy you’d like as a friend. Those closest to him describe the financial planner as charming and fun, adored by children, devoted father to two daughters. He was generous, quick to pay for drinks, and could be counted on to show up at weddings, funerals and hospital bedsides.

In June, the monthly cheques he issued to his clients for decades stopped coming or bounced, and Jones, 67, stopped taking calls. Investors got a sick feeling in their stomach. They began to fear the generosity of a man known to many as Uncle Earl had been coming directly out of their life savings, and his appearance at funerals and weddings might not have been so selfless after all.

Authorities now say Jones may have orchestrated an elaborate Ponzi scheme that defrauded investors of between $50 million and $100 million, and who has vanished.

He was being sought on Cape Cod where he had been involved with the Living Independently Forever, Inc. facility, which offered supported independent living in condominium communities. Unfortunately clients who thought they had a few hundred thousand gaining interest face eviction from their retirement homes because they can’t pay the rent.

Like Madoff, Jones understood that his greatest accomplice was trust. Madoff earned the confidence of two of the most respected businessmen and philanthropists in his world early on and built on this trust. More disastrously, Jones targeted his family and his immediate circle of friends.

Whatever happened, it’s evident Jones was growing increasingly desperate in the last few years, and especially in the last month. At least five years ago he began convincing widows with paid-off homes to take out a new mortgage so he could invest the loan and get a higher return.

In June, the stories got more far-fetched, with Jones convincing people to remortgage their homes because Bunny Storey, widow of Grey Cup hero and NHL referee Red Storey, or others were desperate for cash and would repay with interest for a short-term loan. It was all lies.

There is nothing redeeming in this tragedy. The only hope is that the bilked widow will soon be a thing of the past as women are now more involved in the family finances. They are thus less likely to hand over their cash to a spouse – or a husbandly adviser who may be peddling a Ponzi scheme.

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Update
Earl Jones is arrested in his Montreal lawyer’s office.

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Combating Identity Theft

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Identity theft is a particular concern for seniors. The invasion of privacy can be devastating and the steps needed to eliminate the problems caused by the identity theft can be long and onerous.

It is not just a problem for seniors. That is why the Wall Street Journal reports that Security Experts React to Obama’s Cybersecurity Report with enthusiasm. These cybersecurity concerns apply both at the national level and also for all individuals.

Several executives were encouraged by Mr. Obama’s personal remarks on what is often seen as an obscure issue. “I know how it feels to have privacy violated because it has happened to me,” he said, noting that his campaign’s emails and files were hacked last year.

“Identity theft is something that lives off in virtual land, and I think has people appropriately nervous, so I thought the president did an excellent job touching on issues people identify with,” said Ed Amoroso, AT&T’s chief security officer.

The appointment by President Obama of a cybersecurity czar will bring heightened emphasis on these issues. Nevertheless whatever improvements are made at the national and corporate level against such activities as phishing to steal personal data, the ultimate responsibility is always with the individual. Precautions must always be taken to guard against any security breaches.

If the unfortunate happens and an individual is the victim of identity theft, then it is worth ensuring that you already have in place an Identity Theft Recovery Kit. This should set out a detailed plan of what needs to be done including important phone numbers, websites, and addresses. You should also keep a good recovery log of what is done on every account in case problems arise. Such precautions when dealing with identity theft are never a waste of effort.

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Consumer Protection

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Consumer Protection Resources

Particularly in these hard times, it is even more important than ever that consumers know their rights and are protected from aggressive or even illegal business practices.  There are a number of resources that suggest they would be of assistance.  Here are some of them:

The list in the last portal has one resource where the link to the website is missing, somewhat surprisingly, at the time we write this.  That is the reference to the Business Practices and Consumer Protection Authority of British Columbia.  The website does exist and there you can learn that

The Business Practices and Consumer Protection Authority (BPCPA) is a not-for-profit corporation that delivers consumer protection services throughout British Columbia.  BC’s consumer protection laws provide the framework to help the BPCPA protect consumers and encourage a fair marketplace in the province.

There is even a Consumer Corner  and in the past, there have been some useful tips:

Buyer Beware

The interesting aspect of the above resources, almost without exception, is that they usually have two objectives.

  • To set out good business practices, which in some cases may have associated legislation.
  • To provide consumers with advice on how to take care of themselves.  In some cases, there is also a Complaints process.

What is rarely provided is a list of companies whose practices are questionable, or even the subject of complaints. This seems to be a field left to private individuals.  However via the Internet and through the social media such as Twitter such information is becoming more available.

Freedom of Information

Thankfully there is increasing openness in society and governments and their agencies must respond, even if it takes legislation to enforce this.  For example, Larry Pynn in the Vancouver Sun through freedom-of-information legislation learned that Collection agencies, retail outlets and travel agents easily led the top-10 list of consumer complaints received last year by the Business Practices & Consumer Protection Authority of B.C.

Collection agencies were the source of 2,591 phone and mail complaints/inquiries, followed by retail sales at 1,861, and travel agents at 1,008 (136 of whom involved unlicensed agents).

Other sectors on the dubious top-10 list: automotive sales, 551; funeral service, 447; telecommunications, 436; credit/financing 440; credit reporting, 390; contractors, 371; and telemarketing, 367.

You should consult the article for names if you are interested. The BPCPA defends this lack of communication and prefers to work directly with companies to ensure better behavior.  However in this age of Twitter, many ways of communicating what is known are having to be rethought and this area of consumer protection may well be one of them.  Nothing can ensure better business consumer practices faster than by the perpetrators knowing that everyone is watching.

Perhaps the new watchword should be Seller Beware rather than Buyer Beware. It is not something that is difficult to accept since satisfied consumers are the key to better sales growth.

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Grandson Scam

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Grandson Scam is the name this time around. The RCMP have shut down a ‘grandson scam’ in west-end Montreal, which operated out of money transfer outlets

RCMP officers yesterday raided 16 Western Union and MoneyGram outlets that were allegedly involved in an international telemarketing scam that touched hundreds of seniors in Canada and the United States.

The fraudster poses as the grandson of the victim and pretends to be in financial trouble in a foreign country. The caller then asks the “grandparent” to send a money transfer, promising to pay the money back upon returning home. Victims were allegedly bilked out of a total of $3.5 million.

1,000 people filed complaints with the RCMP and about 80 per cent had given money as requested. The RCMP warns people against transfering money without knowing for sure who it is going to.

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Ponzi Schemes in Ponzi States

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Is Florida a giant Ponzi scheme as Neil Macdonald of the CBC suggested?  Or is it perhaps that The United States is The Largest Ponzi Scheme in the World as Bill Bonner described.

Now Nouriel Roubini of Forbes confirms that view: it is The United States Of Ponzi.

Behold the Madoff in the mirror

Americans lived in a “Made-off” and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its over-leveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now collapsed in a heap.  When you put zero down on your home, and you thus have no equity in your home, your leverage is literally infinite and you are playing a Ponzi game.

If you are not sure exactly what constitutes a Ponzi scheme, here is how the Security and Exchange Commission (SEC) describes it

“Ponzi” Schemes

Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts.

Decades later, the Ponzi scheme continues to work on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.

As the SEC points out it is a type of Pyramid Scheme.

Pyramid Scheme

In the classic “pyramid” scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors.

The SEC chart below shows how pyramid schemes can become impossible to sustain.

SEC pyramid

You may ask how does all this relate to what has been happening in the United States of America.  In what sense is that a Ponzi Scheme?  Perhaps the image below can typify what is involved.

ponzi pyramid

The top part of the pyramid is what a company or individual has created in the past in assets.  Often starting with zero, a worthwhile pile has been created.  Everyone assumes that things will continue to grow in the future in the way they have in the past.  People borrow to create the even bigger future that is the base of the pyramid.  The lenders believe the promises and provide the funds to support the growth. 

However just like the Ponzi pyramid there is a limit to growth. The Past was solid, the Future is unknown. They are all dreaming in Technicolor.  Eventually it turns out their pyramid is build on a base of sand.  The whole edifice collapses.  Welcome to the world of Ponzi.

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Canada Revenue Agency E-mail Scam

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Given the difficult economic conditions, everyone is eager to get any income tax refund they may be due from the Canada Revenue Agency as quickly as possible.  Knowing that, the scam artists try to phish, or in other words get unwary people to give personal information that will allow them to be defrauded.  That is why last August, the Canada Revenue Agency warned Canadians of a mail scam.


The Canada Revenue Agency (CRA) is warning taxpayers to beware of a recent scam where some Canadians are receiving a letter fraudulently identified as coming from the CRA and asking for personal information. The letter is not from the CRA. A PDF version of the letter is available on the CRA Web site at www.cra.gc.ca/alert.

The letter claims that there is “insufficient information” for the individual’s tax return and that in order to receive any “claims,” they will have to update their records. The letter attaches a form specifically requesting the individual’s personal information in writing, via fax or email, including information on bank accounts and passports. This letter is not from the CRA and Canadians should not provide their personal information to the sender.

All taxpayers should be vigilant when divulging any confidential information to third parties. The CRA has well established practices to protect the confidentiality of taxpayers’ information.

It appears that the scammers have moved online according to a former CRA employee, who warns all to beware of online tax scams.

Robert Day says taxpayers should be wary of the information they’re willing to give up online during tax season. Even though he worked for the Canada Revenue Agency for 30 years, he fell for the scam.

When Day clicked on a link inside an official looking email that appeared to be from the Canada Revenue Agency, it took him to an official looking website that asked for some personal information.  “I don’t know whether I had a short circuit between the earlobes or something,” said Day. “But, I went into this darn site and it had you type in your social insurance number to get into the site.”

If someone with such experience can fall for it, everyone should be doubly cautious when they receive e-mail messages that appear to come from the Canada Revenue Agency.

Today I received the following e-mail message, that purports to come from the Canada Revenue Agency.  However unless some staff members at the CRA have inferior spelling skills, this should not fool too many people.

Canada Revenue Agency scam

Worm Regards, indeed.  It is so ludicrous that one wonders if it is a deliberate spoof.  Nevertheless it can serve to warn all that more insidious e-mail scam messages from the Canada Revenue Agency are making the rounds.  Remember the CRA will not be contacting you this way and nor will the security departments of your bank or your credit card company.

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Ponzi Schemes, Madoff and More

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If you are looking for information on Ponzi schemes, I thoroughly recommend The Ultimate Guide to Ponzi Schemes.  It is the compilation of a great deal of research on Ponzi schemes with links to all the resources.

I found the following top ten list of Ponzi schemes from Business Pundit of particular interest:

  1. The Namesake: Charles Ponzi
  2. Madman Madoff: Bernie Madoff
  3. The Retiree Plunderer: Michael Eugene Kelly
  4. The Boy Band Bandit: Lou Pearlman
  5. The Biblical Bilker: Gerald Payne
  6. The Costa Rica Crooks: Enrique, Osvaldo and Freddy Villalobos
  7. The Lottery Uprising: The Albanian Government
  8. The Scientologist Snake: Reed Slatkin
  9. The Haiti Haters: various Haitians
  10. The Fraudulent Feminist: Sarah Howe

Bankling also has some interesting lists of Personal Finance Blogs that are worth a gander.

Financial Ramblings: 150+ Personal Finance Blogs: the Bankling list

WiseBread: Top 100+ Personal Finance Blogs – Sorted by Alexa Rank

Top personal finance blogs ranked by traffic (Alexa) updated daily.

the Dk report: Top 30 Financial Blogs

30 popular financial blogs from the Alexa universe excluding the huge financial behemoths.

PopTopRanks: Personal Finance

A directory of top sites listed by number of feed subscribers together with the sites’ most recent headlines.

reportonbusiness.com: Best of the Blogs

Five favourite investment blogs from the Globe.

Whether you are looking for Personal Finance items or more specifically Ponzi scheme information, you should certainly find it somewhere here.

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