4 Financial Crisis-Related Scams

Con artists are using market fears to collect personal information and defraud investors.

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Financial market upheaval is providing new opportunities for scam artists to defraud consumers. The economic uncertainty plaguing many Americans gives salespeople a new pitch to persuade consumers to hand over personal information and buy financial products that may not be in their best interest. Here are a few of the new twists on old scams and how to protect yourself.

Phishing. Fraudulent E-mails pretending to be from a legitimate institution are nothing new. The E-mails usually try to get you to click on a link or hand over sensitive information like credit card numbers, passwords, bank account information, or your Social Security number. The latest twist on phishing is E-mails that appear to be from a financial institution making headlines for acquiring your bank account or mortgage. "The idea is to trick someone into doing something that will compromise their own security rather than compromise it in some more technical way," says Zulfikar Ramzan, a technical director who develops security technologies for Symantec Corp., maker of Norton Antivirus and other software. Many E-mails will ask you to update, validate, or confirm your account information, which a legitimate bank will never ask you to do through E-mail. "If you get an E-mail and are concerned it might be real, you should go to your bank statement and go to the website listed on your bank statement or call customer service," recommends Nat Wood, assistant director for consumer and business education in the Federal Trade Commission's Bureau of Consumer Protection. Ramzan also recommends typing the name of your bank in a search engine to find the correct website rather than clicking on a link in an E-mail.

Sweepstakes. Most frequent Internet surfers have seen pop-up or banner ads for a free iPod, plasma TV, or cruise to the Bahamas. "You feel like times are tough and you can't really pay the retail price," says Benjamin Edelman, an assistant professor at Harvard Business School. But in many cases, it is nearly impossible to get the prize, and scammers sometimes try to solicit a fee upfront and then never provide the promised reward. "The number of hoops you have to jump through is pretty onerous," says Edelman, who recommends developing what he calls banner ad blindness. "It's a good idea to ignore the ads and not click on anything that looks like an ad."

Free lunch. Four out of five investors age 60 and over received at least one invitation to a free investment seminar in the past three years, according to AARP. The invitations promise to educate potential investors about strategies to manage money in retirement, usually with an elaborate meal provided at no cost. Investors concerned about recently declining 401(k) balances may be particularly susceptible. A recent yearlong examination of free-lunch seminars conducted by state securities regulators, the Securities and Exchange Commission, and the Financial Industry Regulatory Authority found that many free-meal financial seminars were advertised as educational or workshops, but most were sales presentations (100 percent), featured exaggerated or misleading advertising claims (50 percent), and involved possibly unsuitable recommendations to attendees (25 percent). "Rather than talk about the thought process of retirement planning, they focus purely on the detailed products," warns Jean Setzfand, the director of financial security at AARP. "[Attendees] may fall prey to an aggressive sales pitch." AARP and the North American Securities Administrators Association recently developed a checklist to bring to free investment seminars to assure that the products and promoters adhere to securities laws and regulations.

Unsolicited sales pitches. The current stock market is swinging wildly, and no one knows what it is going to do tomorrow. Anyone promising high returns right now or offering to buy your stock for above its current market value probably has ulterior motives. "When you are seeing your legitimate investments decline sometimes overnight, there is a tendency to want to try to recoup some of that and maybe to become a little more risky and listen to some of the promises of promoters," says Bob Webster, a spokesperson for NASAA. "Anytime there's a lot of volatility in the market, you tend to see promotions that promise high returns. Typically you see things like unregistered securities, oil and gas investments." AARP says it receives the highest number of complaints about variable annuity products. "Fraudsters may attempt to convince people that they have guaranteed investment returns," says John Gannon, executive director of the Financial Industry Regulatory Authority Investor Education Foundation. "Investments rise and fall, and there is absolutely no guarantee of returns." You should get information about any investment in writing and have a third party like a lawyer or independent financial adviser look it over. You can check out a broker's legitimacy on FINRA's BrokerCheck or by contacting your state or provincial securities regulator.