Fraud from abroad

Pyramid schemes. Advance-fee swindles. Religious-affinity-loan scams. Look what the Web dragged in.

Vaughn Nelson had done well as an investor in the 1990s, regularly racking up annual returns of 23-to-25 percent in both his 401(k) and his outside investments.

Then a longtime business associate offered Mr. Nelson an even better deal: 23-to-25 percent monthly returns from loaning money to big, though unnamed, banks in Europe. The friend added that he had $120,000 of his own in these "offshore investments."

So the Salt Lake City businessman plowed $6,000 into the venture. It quintupled in a matter of months. With returns coming through as promised, he tapped his retirement plan for $50,000. That money was lost.

Nelson now says the associate lied to him and has since been convicted of securities fraud in connection with a "prime bank" scheme; a swindle that authorities estimate annually pulls $1.75 billion from the wallets of people nationwide.

From bank-loan scams to Nigerian advance-fee swindles to good old pyramid schemes, fraud is alive and well in America.

One top fraud-buster, Alabama Securities Commissioner Joseph Borg, believes the economic downturn from which the US appears to be emerging has boosted the flim-flam industry. With the stock market generating little income for investors, more and more people grab deals that they might have considered too risky in the past, he maintains.

"They're still looking for someplace to put money," says Mr. Borg. Because people became used to 20 percent yearly returns in the mid-1990s, propositions offering even greater riches haven't set off the alarm bells they once did.

Borg, who also is chairman of the North American Securities Administrators Association (NASAA), says people who steered clear of the stock market are vulnerable, too. If they had money in certificates of deposit, they've felt cheated the past year as they rolled over accounts earning 8 percent into ones gaining 2 percent or less.

Embarrassed victims don't tend to step forward, so accurate records on the numbers of people swindled, and amounts taken, are impossible to come by.

However, Ashley Baker, a spokesman for NASAA, says that in recent meetings of group members "everyone was seeing more of this, not less."

Some of the scams are twists on old standards, such as "gifting" programs that cite Internal Revenue Code that allows anyone to give anyone else $10,000 yearly, tax-free. Sometimes called Season of Sharing, or Women Empowering Women, the cons target women and are, in fact, illegal pyramids that have prompted warnings from the IRS for violating gifting statutes.

The US Secret Service has set up a task force to combat the Nigerian fee swindle. In this ruse, a letter arrives at home or work one day postmarked Nigeria, Togo, or some other West African country.

The letter writer claims to be working with Nigeria's national oil company, for instance, in such a high-level capacity that he or she has been able to siphon off tens of millions of dollars from contracts.

The executive has no way to get the funds out of the country, unless the American would kindly provide his or her bank account number so that the money can be transferred.

Of course, the American will get a fat percentage of the take. And, of course, anyone falling for this will have his or her banking accounts looted in the blink of an eye.

This African-based scam has taken to the Internet to reach a wider audience. "Any crook who doesn't use the Internet ought to be sued for malpractice," jokes Alabama's Borg. Not all online swindlers operate from abroad. His state is prosecuting a Phenix City, Ala., businessman who, working from a storefront with just computers and no other advertising, convinced 33,000 people from all 50 states and 32 foreign countries to send him $300 each in a loan program during a four-month period in 1999-2000.

The Alabama case was part of one of today's faster-growing swindles: religious affinities.

Hustlers will often direct their work toward members of a certain religion and tell them, for instance, that they have developed a loan program based upon Christian principles and are in need of seed money, or loans that promise quick and profitable repayment.

Officials in Florida are still trying to find much of the $500 million that the self-proclaimed Internet missionary church Greater Ministries International, of Tampa, Fla., swindled from people in what has been called a classic Ponzi scheme.

Its operatives have been given long prison terms for bilking some 27,000 victims worldwide; Amish and Mennonites of Pennsylvania were favorite targets.

Offshore investing is another popular way of extorting money. Here, the bad guys rely upon ignorance on behalf of the investors.

Ms. Baker of NASAA has a videotape of a crook telling victims that European checking accounts pay 20 percent interest per year.

Would-be investors should ask themselves: "How much do [I] know about the German banking system?" says Baker. "The common sense detectors should go off on that."

Unless they speak German or know which sources to talk with overseas, the average investor really can't easily check these claims, she adds. So a heaping dose of skepticism is needed.

Vaughn Nelson was offered promissory notes and insurance policies to entice him into prime-banking loans.

He got them, but they were phonies. And he admits that he should have done some more checking to ensure that both the security provider and the seller had registered with state securities commissions.

If you find the regulators in the dark about a deal, Nelson says, "don't [just] walk away from it. Turn your back and run."

Where to surf to learn more about avoiding fraud

SEC website alerts people to various investment scams including "prime banks" and Nigerian swindles. Site also provides advice on how to protect yourself.

National Association of Securities Dealers website is another good place to visit before opening your checkbook. html

Florida Office of the Comptroller gives a good rundown on a number of scams.

www.crimes-of persuasion. com

A virtual encyclopedia on everything from money laundering to chain letters to telemarketing fraud. Rundowns of the latest scams, such as this season's "tax audit" e-mail. It claims to be from the IRS and demands you give your Social Security and bank account numbers. (Sorry folks, the IRS already knows this information.)

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