Is there a scam looking for you?

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Bernie Madoff was convicted of scamming Jewish friends, business associates and even foundations of more than $50 billion. Kirk Wright was convicted of scamming African-American friends, business associates and prominent NFL players of more than $150 million. In both of these cases, most of the victims were “referred” to these criminals by respected and successful friends.

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Scam artists are all around us and their schemes are ubiquitous. Scammers are lurking in our barbershops and beauty parlors; in e-mails from Nigeria and with our friends on Facebook and Twitter; on the telephone supposedly representing victims of natural disasters like Hurricane Katrina; and even in our churches and social clubs trying to sign us up for natural gas accounts or “once in a lifetime” investment opportunities. Factors such as the slow economy, home foreclosures and the Internet have increased the bandwidth for potential scams. But why do scams work and how can we avoid them?

Fear and greed

Scams work because of two innate human characteristics, namely fear and greed. Fear is a basic survival mechanism and is an emotional response to a perceived danger. We are fearful of growing old, losing our home, going broke and the list goes on. Our fears make us anxious and we feel we have to do something to avoid the danger.

Greed is the “get rich quick” demon that is sleeping in all of us. It is the selfish desire to acquire money, wealth or other possessions, beyond our needs.

Scams work because the demons of fear and greed are in all of us. The scammers hype awakens our fears and feeds our greed. We take the bait and willingly sacrifice our hard earned cash to try to either neutralize our fears or satisfy our greed.

Scams du jour

Scammers are convincing and most importantly they don’t have to make good on their promises—therefore they can promise almost anything. Below are just a few of the common scams.

•Self-employment opportunities. Earn easy money working at home and only part-time. Just invest your job severance money and you are on your way.

•Lottery and prizes. You’ve been declared the winner of a lottery or prize, you just have to pay a fee to collect.

•Credit repair. Clean up and fix credit reports for an upfront fee.

•Foreclosue rescue. The scammer will supposedly negotiate with the lender to forebear past due mortgage payments for an upfront fee.

•Nigerian letters. Send a money order or bank check to release thousands of dollars of exiled funds.

•Hot stocks. Invest now in the next Microsoft or Google.

Avoiding scams

Scammers are like germs, they mutate to changes in the marketplace and environment, so there are no hard and fast rules for avoiding scams. However, there are some general principles that you can follow that may help you avoid the most common frauds.

1. If it sounds too good to be true, then it probably isn’t true. Getting rich quick or easily solving long-term problems just doesn’t happen.

2. Avoid solicitations. If you need a product or service, seek it out and do your own research. If someone approaches you trying to sell you something, it very easily could be a scam.

3. Understand before you buy. If you don’t understand it, don’t put your money in it. Discuss it with an independent and trusted adviser before buying.

4. Exaggerated claims and high pressure sales. Be leery of sales pitches that make exaggerated claims. Again, “if it sounds too good to be true, it probably is!” Look at the history and track record of the company. Is it credible? You can check on a company’s background at the Better Business Bureau website: http://www.bbb.org (this website is offered as a courtesy and is not endorsed by Financial Network)

Beware of the scam

Scams are out there and so are good solid reputable products. The challenge is to recognize the difference between the “fool’s gold” and the real thing. Remember, “If it sounds too good to be true, it probably isn’t true!”

(Michael G. Shinn, CFP, registered representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit http://www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com.)

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