Newsletter: November, 2008

Scams to separate people from their money have probably been with us for thousands of years. And with the Internet, you don’t even have to leave your house to lose your shirt! In this issue of The Vault, we talk about how to keep from being tricked out of your hard-earned cash.

How much would you pay for the Brooklyn Bridge? Scroll down to learn all about a con man who sold it to unsuspecting tourists–many times!

You get a great deal on a DVD player on an auction site. You pay the bill, but either you get something else than you ordered or nothing at all.

This scam is big business in Nigeria and is named after the part of the Nigerian criminal code dealing with fraud. You get an e-mail from a powerful person in a foreign nation asking you to help them get their money out of a country facing political upheaval. They send you a check. You deposit it in your account and send them the balance by wire, keeping a “fee” for yourself. By the time the check is discovered to be fake, you’re on the hook for the money you wired to the scammer.

Phishing

You receive an e-mail that looks like it’s from your bank, asking you to provide your account information by e-mail or on a Web site to fix a problem with your account. The real problem is that the request is fake–and the people behind it are thieves waiting to raid your savings.

To start an exciting career working at home (stuffing envelopes or doing medical billing, for example), you are asked to “invest” hundreds or thousands of dollars in a “starter kit.” You find out too late that the kit is worthless.

Your friend tells you that you can get a great discount on cool products and maybe even make lots of money by becoming a “distributor.” It’s someone you trust, so you sign up. You are pressured to sign up other “distributors,” who pay fees to you, while you pay fees to your friend…ultimately only benefiting the people who started the scheme. This is a “Ponzi scheme”–for more on that, see this month’s “Ask John Paul” column, below.

Successful tricksters work hard to blend in. They know how to get people to trust them. Otherwise, they’d never get away with it! Sometimes you might even get sucked into a scam by someone you trust who doesn’t know that they are being taken.

It’s not always easy to tell when a deal is fake, but here are some sure signs:

• You are offered “something for nothing”–huge returns on a small investment, for example. Ask yourself this: if it’s such a good deal, why isn’t everybody doing it?
• The deal is said to be “top secret” and you’re not supposed to tell anyone else. Most legitimate businesses have nothing to hide.
• You are asked to provide your personal information over e-mail or by someone who calls you on the phone. Banks and other companies never do that.
• You are asked to put money up for something where the details are unclear. If you don’t understand how it works, don’t waste your time.

Q: I recently heard the term “Ponzi Scheme.” What does it mean?

A:  The Ponzi scheme is named after Mr. Charles Ponzi.  Mr. Ponzi told investors that he would double their money in 3 months by buying special stamps and selling them at a profit.  Only a few people put their money in at the beginning. Sure enough, they got what they were promised. People told their friends about this “great investment” and more and more people invested. What really happened was that people were paid out of other people’s investments–Ponzi never bought or sold stamps at all. He managed to scam $15 million out before he was exposed. Many people never got their money back, and Ponzi spent several years in prison.

John Paul Pigéon is a 12-year-old financial guru from Fort Worth, Texas who helps kids learn about money and business. Visit his Web site at www.johnpaulpigeon.com. Send your question to askjohnpaul@bizkids.com. It may be selected for our next newsletter!

Click here to learn all about the famous con man who sold New York landmarks to gullible tourists:

http://en.wikipedia.org/wiki/George_C._Parker

Here’s some information from the Better Business Bureau on avoiding investment scams:
http://www.bbbmoneynow.org/?lid=1&page=avoidingscams

This is a great site for learning more about what to watch out for in multi-level marketing:
http://www.mlmwatch.org/

And don’t forget to check out the BizKids Web site where you can get the latest scoop on all things biz:

https://bizkids.com