Before reading this blog, consider reading Part 1, which provides a short introduction to common scams targeted at widow(er)s-- you can find the post here. In Part 2, we will discuss 2 specific examples of scams that happened in the DC area, and we'll give a more detailed description of how to protect yourself from falling victim.
The Dawn Bennett Ponzi Scheme
I'm sure that some of you have heard about the infamous case of Dawn Bennett, the woman who was caught operating a Ponzi Scheme in the DC area. Bennett, owner of the "Bennett Financial Group", was recently found guilty of committing securities fraud conspiracy, wire fraud & bank fraud.
Dawn was a financial advisor and radio host, and she was fairly well-known in the public eye-- so how did she get away with such a crime? Aside from her "Voodoo spells" that she apparently used to protect herself from getting caught, she actually used her perceived expertise to manipulate and gain trust from the elderly population.
Bennett persuaded clients to invest in her sports apparel company and promised a 15% annual return on investment-- a promise that she knew she wasn't going to be able to deliver on, because she was intentionally defrauding her victims.
Your first question is probably: What is a ponzi scheme?
"A ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves" (US Securities and Exchange Commission, n.d.).
Bennett had overstated her apparel company's sales and liabilities to investors and committed securities fraud (also known as investment fraud); she essentially manipulated her clients into making the decision to invest based on the false information she provided them. Her experience & status in the local community led people to trusting her-- how could someone so successful and well-known be running a scam, right?
Unfortunately, the invested money was actually helping to fund her lavish lifestyle. Court documents show that she "spent their funds on a luxurious lifestyle that featured jewelry, clothing, mystics, and a $500,000 annual lease on a luxury suite at the Dallas Cowboys’ stadium" (Welsch, 2018).
This scam is different than the ones we had focused on in our last blog--other attackers pretend to be employees of legitimate companies or use fake identities to carry out their crimes, whereas Bennett was a legitimate employee who operated publicly. In reality, anyone could've fallen victim to her tricks, leading to huge problems when the promised returns were never delivered. In fact, "one victim, unnamed in court documents, put up half a million dollars in 2015. And in some cases, her advisory clients withdrew money from retirement accounts in order to invest in the apparel company, authorities said" (Welsch, 2018).
Many of us don't completely understand investing, which is why we hire trusted investors from legitimate companies to help us. So, how can you spot a Ponzi scheme like this one?
Protecting Yourself from Investment Fraud
The U.S. Securities and Exchange Commission has shared a few common red flags that may indicate an investor is running a Ponzi Scheme. These "Red Flags" include promised high returns with little-to-no risk, overly consistent returns, unregistered investments, unlicensed sellers, secretive or complex strategies, issues with paperwork and difficulty receiving payments (more information can be found here).
It's important to look out for these red flags when working with someone, but even further, you'll want to make sure that you're doing business with a legitimate person before creating a business relationship with them. To help you find a trusted investor, you can request referrals from trusted friends and family. You'll also want to look into your investors certifications by searching organizations like the National Association of Personal Financial Advisers or the Financial Planning Association (Marquardt, 2008). You can also use Finra's BrokerCheck to research stock brokers and determine if they're trustworthy.
Another tip is to make sure you understand everything that's happening. Do you know what indexed or variable annuities are? Do you know what an average return on investment is? Make sure you ask questions and do your own research to understand what your investor is recommending that you do with your funds, and make sure to research the companies that you're investing into.
Investment fraud scammers try to prey on people who aren't as knowledgeable about investing, because they can get away with lying and the victim doesn't realize that the investor is spreading misinformation. As a general rule, you should be skeptical and do your research before trusting someone with your life savings.
Finally, "if you think an investment is a Ponzi scheme or any other type of scam, or you’ve been victimized, file a complaint with the Securities and Exchange Commission, FINRA and your state securities regulator [...]. One sign that you’ve put your money into a Ponzi scheme is that you’re unable to obtain promised payments or cash out" (Giorgianni, 2017).
Prince George's County, MD: Romance Scam
We talked about online sweetheart scams in our last post, because scammers specifically try to target widowed women. In fact, in 2017, "Prince George’s County saw 11 people convicted of participating in a large romance fraud scheme, including a Laurel resident, Gbenga Ogundele, who took more than $2 million from his victims over the course of four years" (Elliott, 2018).
These "Sweetheart Scams" are especially popular around Valentine's Day, and officials have been urging DC area residents to be cautious of meeting potential love-interests online. In the Ogundele case, the scammers conspired to commit money fraud & money laundering, and Ogundele was even convicted of aggravated identity theft. The group of 11 conspirators scoured dating sites to find vulnerable individuals, and began textings & calling the victims to create romantic relationships.
"Members of the conspiracy used false stories and promises to convince the victims to provide money to the conspirators, including fake hospital bills, plane trips to visit the victims, problems with overseas businesses and foreign taxes" (U.S. Attorney’s Office, 2017).
So, how can you tell when your potential love interest is trying to scam you? There are a few things including: Confirming their identity, confirming their stories & saying no to cash-transfers.
When you first meet someone online, check to see if they're a real person. Many times, people will "catfish" victims and use fake photos pretending to be someone else. Make sure that you're talking to a real person by checking if their photos are legitimate by using a reverse-image search; this lets users know if the photos are posted anywhere else on the internet (i.e. under different online profiles, suggesting the photos have been stolen). If the person that you're talking to never wants to video call or meet in-person, even though they live close-by, they might be hiding something. (Note: We recommend never meeting someone from the internet in a private setting-- always ask to meet in a public, well-lit place, like a Coffee Shop at noon).
You can look up their social media profiles on Facebook, Instagram or Twitter to see if there are any accounts with the same name and corresponding photos. If no accounts exist, then the person either a) doesn't have social media or b) is pretending to be someone they're not. A tell-tale sign that someone has a fake social media profile is if they have an extremely small number of friends on Facebook (i.e. 5-10 friends total). You can look at their photos to see if their being tagged in photos posted by other accounts, and you can also check to see if their friends are posting onto their timeline or interacting with them regularly. Most people use social media to keep in contact with others, so when the profile is barren and empty, it might be a sign that the account is fake.
You can also look at their friends profiles to see if these other profiles look real (tell-tale signs of real profiles are large numbers of friends, people commenting on statuses, friends posting onto their timeline, extensive numbers of photos with other people tagged, etc.). Some people will create a few different profiles to make their own accounts seem legitimate.
Fake photos and profiles are common in sweetheart scams, but some scammers use real photos on their profiles, too. Still, these scammers will create fake stories as to why they need you to send them money. They'll create urgent reasons as to why they need financial help, like claiming that they need to help a sick or injured family member. Some scammers might make-up a major disaster as a reason for needing money, and oftentimes, you can look up the story in the news to see if the event actually happened. For example, if they claim that their home burned down in a major forest fire, you can search the local news outlets to see if the forest fire was real in the first place.
Regardless of their stories or reasons for needing financial help, you should turn down their request for money-- you've never even met them in person, so why should you be responsible for them financially? They'll try guilting you into paying them and may threaten to stop talking to you if you don't pay-up, but in reality, a real person would be understanding about if their love interest was unable to pay them for any reason-- and a sane person wouldn't demand money via the internet or use threats.
Say No to Cash-Transfers
As soon as someone starts asking for money, stop all contact. If you suspect they're a sweetheart scammer, block their number and warn local authorities. Somebody may seem completely trustworthy, and their stories may seem plausible, but they could be using you as their personal piggy-bank. Avoid falling victim to these scams.
Elliott, V. (2018, February 12). FBI Warns DC Area About Valentine's Day Scams. Retrieved February 21, 2019, from https://www.washingtonian.com/2018/02/12/fbi-valentines-day-great-time-online-romance-scams/
Giorgianni, A. (2018, October 04). 6 Ways to Avoid an Investment Ponzi Scheme. Retrieved February 21, 2019, from https://www.investopedia.com/articles/investing/091115/6-ways-avoid-investment-ponzi-scheme.asp
Laurel Man Sentenced to Over 19 Years in Federal Prison for Defrauding Victims of Millions of Dollars Through Internet Dating Scam. (2017, March 22). Retrieved February 21, 2019, from https://www.justice.gov/usao-md/pr/laurel-man-sentenced-over-19-years-federal-prison-defrauding-victims-millions-dollars-0
Marquardt, K. (2008, December 16). 5 Ways to Avoid a Ponzi Scheme: Madoff Edition. Retrieved February 21, 2019, from https://money.usnews.com/money/articles/2008/12/16/5-ways-to-avoid-a-ponzi-scheme-madoff-edition
Ponzi Scheme. (n.d.). Retrieved February 21, 2019, from https://www.investor.gov/protect-your-investments/fraud/types-fraud/ponzi-scheme
Welsch, A. (2018, October 17). 'Hoodoo' curse couldn't hide advisor's $20M Ponzi scheme. Retrieved February 21, 2019, from https://www.financial-planning.com/news/ex-financial-advisor-dawn-bennett-found-guilty-in-20m-ponzi-scheme-case