Small frauds

Share This Post

Small frauds

We recently got an inquiry about someone who had invested $17,000 of her own money, and $23,000 of other people’s money, in a deal allegedly to develop computer-based training for schools in Africa, first in Zimbabwe, then working up to Cairo. The project was said to be coordinated through the Bank of Ghana, which had received a $55 million dollar grant to buy equipment and put the program in place. The investor would be the owner of the company, according to the promoters and 70% of it would be profit.

With $55 million in play, why was her money needed? Well, they needed cash for the insurance ($10,000), and money for what was termed “blessings,” which certainly sounds better than bribes, which are illegal. Since the return on investment was so high, it seemed worth the investment to the poor victim.

The details of the fraud are not terribly important, since it looks a great deal like most frauds of this kind. There was an appeal to greed, a good deal of stroking involved, a lot of faxing of official-looking documents, a lot of international calls to seemingly-important people, no verification (by the victim) of anything that was going on, and a concerted effort to overlook the question of whether the deal made any sense.

Did she ask for outside advice on the deal? Certainly: She is, after all, a teacher, and no fool! Her lawyer, and, apparently everyone else with whom she consulted, said she should absolutely not do this. But the deal was so good, who could resist?

Now, stripped of her life’s savings, possibly obligated personally for the monies given directly to her by the other investors, and negotiating with her telephone company about paying for the many thousand dollars of calls to Africa – ostensibly to the direct line of the President of the Bank of Ghana – she is still convinced that the deal will go through, and will likely borrow more money to cover unexpected costs that have delayed her money being sent to her.

In another case, less egregious only because it did not wipe the victim out, an investment banker mentioned that a friend of theirs had invested in a high-yield scheme without bothering to ask for advice. Since the current WSJ Prime Rate is 4.000, the Federal Discount Rate is 2.000, the Fed Funds Rate is 1.000, and the 11th District Cost of Funds is 1.821, it shouldn’t take a rocket scientist to guess that a guaranteed return of even 20% APR should make you more than a trifle suspicious.

For fraud to be successful there generally need to be two willing participants, one of whom is the victim. As W. C. Fields noted, you can’t cheat an honest man, so there has to be a sufficient level of greed to overcome common sense and, sometimes, moral standards. As always, if it sounds too good to be true, it almost certainly isn’t true, and you are likely to lose everything you invest.

Most of our readers, we hope, will have little contact with fraudsters. Yet a lot of people are getting defrauded on a regular basis in scams that look, to the outsider, like, well, scams.

On one end of the spectrum you have the obvious scam by e-mail asking for you to act as the conduit for funds hidden away by the writer’s now dead relative who had a position of power in his African government. On the other end, are the very accomplished fraudsters who are repeatedly able to “sell” shares in companies, future profits in new technologies, and a range of other products for which the wealthy or not-so-wealthy would-be investor hands over substantial sums of money to an individual or sham company. Tragically, most are later so embarrassed at having been taken that the fraudster is rarely brought to justice.

If you want to see how good some of these people are, just answer one of the many scam e-mails you get every day. The correspondence will provide you with endless amusement, but DON’T send money, DON’T send account information, DON’T send personal information, and DON’T make expensive international calls.

More To Explore