The Great Charles Ponzi XI

Well, once again courtesy of Wikipedia, let's look at the fate of Charles Ponzi:

Ponzi's rapid rise naturally drew suspicion. However, when a Boston financial writer suggested there was no way Ponzi could legally deliver such high returns in a short period of time, Ponzi sued for libel and won $500,000 in damages. As libel law in those days placed the burden of proof on the writer and the paper, this effectively neutralised any serious probes into his dealings for some time.

Nonetheless, there were still signs of his eventual ruin. Joseph Daniels, a Boston furniture dealer who had given Ponzi furniture which he could not afford to pay for, sued Ponzi to cash in on the gold rush. The lawsuit was unsuccessful, but it did start people asking how Ponzi could have gone from being penniless to being a millionaire in so short a time. There was a run on the Securities Exchange Company, as some investors decided to pull out. Ponzi paid them and the run stopped. On July 24, 1920, the Boston Post printed a favorable article on Ponzi and his scheme that brought in investors faster than ever. At that time, Ponzi was making $250,000 a day. Ponzi's good fortune was increased by the fact that just below this favorable article, which seemed to imply that Ponzi was indeed returning 50% return on investment after only 45 days, was a bank advertisement that stated that the bank was paying 5% returns annually. The next business day after this article was published, Ponzi arrived at his office to find thousands of Bostonians waiting to give him their money.

Despite this reprieve, Post acting publisher Richard Grozier and city editor Eddie Dunn were suspicious and assigned investigative reporters to check Ponzi out. He was also under investigation by the Commonwealth of Massachusetts, and on the day the Post printed its article, Ponzi met with state officials. He managed to divert the officials from checking his books by offering to stop taking money during the investigation, a fortunate choice, as proper records were not being kept. Ponzi's offer temporarily calmed the suspicions of the state officials.

[edit]Collapse of the scheme

By this time, Ponzi was seeking another deal to get him out of trouble, but time was running out. On July 26, the Post started a series of articles that asked hard questions about the operation of Ponzi's money machine. The Post contacted Clarence Barron, the financial analyst who published the Barron's financial paper, to examine Ponzi's scheme. Barron observed that though Ponzi was offering fantastic returns on investments, Ponzi himself was not investing with his own company.

Barron then noted that to cover the investments made with the Securities Exchange Company, 160 million postal reply coupons would have to be in circulation. However, only about 27,000 actually were. The United States Post Office stated that postal reply coupons were not being bought in quantity at home or abroad. The gross profit margin in percent on buying and selling each IRC was colossal, but the overhead required to handle the purchase and redemption of these items, which were of extremely low cost and were sold individually, would have exceeded the gross profit.

The stories caused a panic run on the Securities Exchange Company. Ponzi paid out $2 million in three days to a wild crowd outside his office. He canvassed the crowd, passed out coffee and donuts, and cheerfully told them they had nothing to worry about. Many changed their minds and left their money with him. However, this attracted the attention of Daniel Gallagher, the United States Attorney for the District of Massachusetts. Gallagher commissioned Edwin Pride to audit the Securities Exchange Company's books—an effort made difficult by the fact his bookkeeping system consisted merely of index cards with investors' names.

In the meantime, Ponzi had hired a publicity agent, William McMasters. However, McMasters quickly became suspicious of Ponzi's endless talk of postal reply coupons, as well as the ongoing investigation against him. He later described Ponzi as a "financial idiot" who did not seem to know how to add.

The dénouement for Ponzi began in late July, when McMasters found several highly incriminating documents that indicated Ponzi was merely robbing Peter to pay Paul. He went to his former employer with this information. The paper offered him $5,000 for his story. On August 2, 1920, McMasters wrote an article for the Post declaring Ponzi hopelessly insolvent. The article claimed that while Ponzi claimed $7 million in liquid funds, he was actually at least $2 million in debt. With interest factored in, McMasters wrote, Ponzi was as much as $4.5 million in the red. The story touched off a massive run, and Ponzi paid off in one day. He then sped up plans to build a massive conglomerate that would engage in banking and import-export operations.

However, trouble came from an unexpected quarter—Massachusetts Bank Commissioner Joseph Allen. An initial investigation into Ponzi's banking practices found nothing illegal, but Allen was afraid that if massive withdrawals exhausted Ponzi's reserves, it would bring Boston's banking system to its knees. When Allen found out a large number of Ponzi-controlled accounts had received more than $250,000 in loans, he ordered two bank examiners to keep an eye on Ponzi's accounts. On August 9, they reported that enough investors had cashed their checks on Ponzi's main account there that it was almost certainly overdrawn. Allen then ordered Hanover Trust not to pay out any more checks from Ponzi's main account. He also orchestrated an involuntary bankruptcy filing by several small Ponzi investors. The move forced Massachusetts Attorney General J. Weston Allen to release a statement that there was little to support Ponzi's claims of large-scale dealings in postal coupons. State officials then invited Ponzi note holders to come to the Massachusetts State House to furnish their names and addresses for the purpose of the investigation. On the same day, Ponzi received a preview of Pride's audit, which revealed Ponzi was at least $7 million in debt.

On August 11, it all came crashing down for Ponzi. First, the Post came out with a front-page story about his activities in Montreal 13 years earlier—including his forgery conviction and his role at Zarossi's scandal-ridden bank. That afternoon, Bank Commissioner Allen seized Hanover Trust after finding numerous irregularities in its books. Although the commissioner did not know it, this move foiled Ponzi's last-ditch plan to "borrow" funds from the bank vaults after all other efforts to obtain funds failed.

With reports that he was due to be arrested any day, Ponzi surrendered to federal authorities on August 12 and was charged with mail fraud for sending letters to his marks telling them their notes had matured.^[6] He was originally released on $25,000 bail, but after the Post released the results of the audit, the bail bondsman withdrew the bail due to concerns he might be a flight risk.

The news brought down five other banks in addition to Hanover Trust. His investors were practically wiped out, receiving less than 30 cents on the dollar. The Post won a Pulitzer Prizein 1921 for its exposure of Ponzi's fraud.

[edit]

As always, have a great and fraud-free day

http:/www.tauskvega.com

-------------->>>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi X

Last post, we were talking about the two essential elements that give away a Ponzi scheme (or, for that matter, a pyramid scheme, but that is for another post).  These two elements are:

1.  The fraudster is making a great deal of money in a very short amount of time; and,
2.  The fraudster cannot convincingly explain how such monies are being made.

      As with Charles Ponzi, these elements are met.

     Charles Ponzi was making a great deal of money, for his investors and for himself.  Further, these monies were being made in a short amount of time, literally overnight.

    Second, when asked how he made these monies, Ponzi could not convincingly describe how he was doing so.

     This is the hallmark of most frauds and we will be seeing this theme time and again.

As always, have a great and fraud-free day.

http://www.tauskvega.com

----------------->>>>>>>>>>gene tausk

The Great Charles Ponzi IX

So, we are now beginning to learn how Charles Ponzi was eventually caught.

     As we stated in the last post, Ponzi was making money literally hand-over-fist in overnight deals that seemed to stagger the imagination.  Short of finding a gold or platinum mine (which Ponzi obviously did not do) or winning the lottery (which once again did not happen), people naturally become suspicious when someone starts making obscene amounts of money in a hurry.

    This was the first "clue" that Charles Ponzi was up to something and, further, it was this marker that first started attracting (unwanted) attention to Ponzi.  He clearly could not keep this up forever.

     However, the fact that Ponzi was making all sorts of money in a short time was only the first marker.  The second marker, and the more telling one, which repeats itself in both pyramid schemes and Ponzi schemes (and as we have seen, there is a difference), is that the fraudster has a hard time describing how he is making the money.  This is the "Achilles heel" which strikes pyramid and Ponzi schemes time and again, and Ponzi was no exception.
 
    So, we have the case of Ponzi attracting attention for making so much money so fast and not being able to explain how he did it.

   More tommorrow.

As always, have a great and fraud-free day.

http://www.tauskvega.com

----------------->>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi VIII

For my readers - sorry.  I did not post last night and I noticed I posted part VII twice, although there were two topics.

Well, let's move forward and, once again thanx to Wikipedia, talk about how Charles Ponzi's fortunes, especially his literal "overnight success," started people asking questions:

Ponzi's rapid rise naturally drew suspicion. However, when a Boston financial writer suggested there was no way Ponzi could legally deliver such high returns in a short period of time, Ponzi sued for libel and won $500,000 in damages. As libel law in those days placed the burden of proof on the writer and the paper, this effectively neutralised any serious probes into his dealings for some time.

Nonetheless, there were still signs of his eventual ruin. Joseph Daniels, a Boston furniture dealer who had given Ponzi furniture which he could not afford to pay for, sued Ponzi to cash in on the gold rush. The lawsuit was unsuccessful, but it did start people asking how Ponzi could have gone from being penniless to being a millionaire in so short a time. There was a run on the Securities Exchange Company, as some investors decided to pull out. Ponzi paid them and the run stopped. On July 24, 1920, the Boston Post printed a favorable article on Ponzi and his scheme that brought in investors faster than ever. At that time, Ponzi was making $250,000 a day. Ponzi's good fortune was increased by the fact that just below this favorable article, which seemed to imply that Ponzi was indeed returning 50% return on investment after only 45 days, was a bank advertisement that stated that the bank was paying 5% returns annually. The next business day after this article was published, Ponzi arrived at his office to find thousands of Bostonians waiting to give him their money.

Despite this reprieve, Post acting publisher Richard Grozier and city editor Eddie Dunn were suspicious and assigned investigative reporters to check Ponzi out. He was also under investigation by the Commonwealth of Massachusetts, and on the day the Post printed its article, Ponzi met with state officials. He managed to divert the officials from checking his books by offering to stop taking money during the investigation, a fortunate choice, as proper records were not being kept. Ponzi's offer temporarily calmed the suspicions of the state officials.

Keep in mind this was before the massive government regulation of today.  People were skeptical even back then - how could someone get so rich so fast?

The story continues.

As always, have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>gene tausk

The Great Charles Ponzi VII

Whoops!  I promised to post the difference between a Ponzi scheme and Pyramid scheme two posts ago and forgot about it.

So, courtesy of Wikipedia - here it is:

A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.


And here is a Ponzi scheme:


A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:

• In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
• A Ponzi scheme claims to rely on some esoteric investment approach (insider connections, etc.) and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
• A pyramid scheme is bound to collapse much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.

As always, have a great and fraud - free day.

http://www.tauskvega.com

------------------>>>>>>>>>>gene tausk

The Great Charles Ponzi VII

Now, here is the essence of Ponzi's scheme - remember, Ponzi was supposed to be buying coupons.  He was supposed to send his Italian contacts U.S. dollars and the Italian contacts were supposed to exchange the dollars for Italian lira, buy postal coupons and send them back to Ponzi.  Ponzi was supposed to cash in the coupons for stamps and sell the stamps at a discount to large firms and give Ponzi's investors their return.

     But, this is not what happened.  Ponzi was not buying any coupons.  Ponzi was using new investors money to pay previous investors.  Of course, with any scheme like this, Ponzi had to add new investors to keep running his scheme.  If too many people demand their returns or even their original investment back at once, then the whole thing collapses.

    This is the essence of the get-rich-quick idea that attracts investors.

    Tommorrow we will discuss how Ponzi was caught.

As always, have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi VI

Sorry for not posting yesterday, distracted by work as usual.

     OK - let's view the Ponzi scheme when it is reduced to its most basic element - the "get rich quick" scheme.  This is the essence of every Ponzi scheme - a person is promised unusually large returns on his investments - 200% - 300%, incredible returns.

     This was the essence of what Charles Ponzi was able to offer his investors.  They stood to make an incredible rate of return on their investments.  Most investment counselors will tell a prospective client that a return of 10% per year is a great return.  Imagine, then if you are told you could double your investment in a matter of weeks, if not days.

    The "secret" to this, of course, is no secret at all.  Ponzi discovered the most basic "rip off" in terms of fraud - you pay off the people who invest with the funds of other investors.  This is the classic "Ponzi" scheme.

    Now that we have defined a "Ponzi" scheme, let's continue to look at Ponzi's life in the next post and then we will talk about the difference between a Ponzi scheme and a Pyramid scheme.  Although similar, they do have necessary differences.

   As always, have a great and fraud-free day.

http://www.tauskvega.com

------------------>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi V

Remember from the last post - this is what set Charles Ponzi on his scheme:

 - Ponzi had the idea to have his relatives in Italy buy International Reply Coupons in Italy and send them to him in America.  The International Reply Coupons (IRC's) would cost less in Italy and Ponzi would attempt to exchange them for stamps of higher value in America.

    Now, in essence, this is not in and of itself a terrible or wrong idea.  All Ponzi was attempting to accomplish was to purchase something at a lower price to sell it at a higher price in America.

   Note, however, the idea on which Ponzi immediately hits - he will exchange these IRC's to sell for a higher value and an incredible profit.  This is the very heart of a Ponzi scheme - great returns over a short period of time.   This is, in essence, the hallmark of a Ponzi scheme - it is the proverbial "get rich quick" scheme.

   http://www.tauskvega.com

Have a great and fraud - free day

--------------->>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi IV

Finally, today, once again with the help of Wikipedia, let's examine the actual fraud perpetuated by Ponzi:

After Ponzi's release from prison, he made his way back to Boston. There he met Rose Maria Gnecco, a stenographer, whom he asked to marry. Though Ponzi did not tell Gnecco about his years in jail, his mother sent Gnecco a letter telling her of Ponzi's past. Nonetheless, she married him in 1918. For the next few months, he worked at a number of businesses, including his father-in-law's grocery, before hitting upon an idea to sell advertising in a large business listing to be sent to various businesses. Ponzi was unable to sell this idea to businesses, and his company failed soon after.

A few weeks later, Ponzi received a letter in the mail from a company in Spain asking about the catalog. Inside the envelope was an international reply coupon (IRC), something which he had never seen before. He asked about it and found a weakness in the system which would, in theory, allow him to make money.

The purpose of the postal reply coupon was to allow someone in one country to send it to a correspondent in another country, who could use it to pay the postage of a reply. IRCs were priced at the cost of postage in the country of purchase, but could be exchanged for stamps to cover the cost of postage in the country where redeemed; if these values were different, there was a potential profit. Inflation after World War I had greatly decreased the cost of postage in Italy expressed in U.S. dollars, so that an IRC could be bought cheaply in Italy and exchanged for U.S. stamps of higher value, which could then be sold. Ponzi claimed that the net profit on these transactions, after expenses and exchange rates, was in excess of 400%. This was a form of arbitrage, or profiting by buying an asset at a lower price in one market and immediately selling it in a market where the price is higher, which is not illegal.

Seeing an opportunity, Ponzi quit his translator's job to set his scheme in motion. He borrowed money and sent it back to relatives in Italy with instructions to buy postal coupons and send them to him. However, when he tried to redeem them, he ran into an avalanche of red tape.

Undaunted, Ponzi went to several of his friends in Boston and promised that he would double their investment in 90 days. The great returns available from postal reply coupons, he explained to them, made such incredible profits easy. Some people invested and were paid off as promised, receiving $750 interest on initial investments of $1,250.

Soon afterward, Ponzi started his own company, the "Securities Exchange Company,"^[4] to promote the scheme. He set up shop in a building on School Street. Word spread, and investments came in at an ever-increasing rate. Ponzi hired agents and paid them generous commissions for every dollar they brought in. By February 1920, Ponzi's total take was US$5,000, (approximately US$54,000 in 2008 dollars). By March, he had made $30,000 ($328,000 in 2008 terms). A frenzy was building, and Ponzi began to hire agents to take in money from all over New England and New Jersey. At that time, investors were being paid impressive rates, encouraging yet others to invest. By May 1920, he had made $420,000 ($4.59 million in 2008 terms).

He began depositing the money in the Hanover Trust Bank of Boston (a small bank on Hanover Street in the mostly Italian North End), in the hope that once his account was large enough he could impose his will on the bank or even be made its president; he did, in fact, buy a controlling interest in the bank (through himself and several friends) after depositing $3 million. By July 1920, he had made millions. People were mortgaging their homes and investing their life savings. Most did not take their profits, but reinvested.

Ponzi was bringing in cash at a fantastic rate, but the simplest financial analysis would have shown that the operation was running at a large loss. As long as money kept flowing in, existing investors could be paid with the new money. In fact, new money was the only way Ponzi had to pay off those investors, as he made no effort to generate legitimate profits.^[5]

Ponzi lived luxuriously: he bought a mansion in Lexington, Massachusetts, with air conditioning and a heated swimming pool, and he maintained accounts in several banks across New England besides Hanover Trust. He also brought his mother from Italy in a first-class stateroom on an ocean liner. She died soon afterward.

We'll do a step-by-step analysis beginning tommorrow.

http://www.tauskvega.com

As always, have a great and fraud free day

----------------->>>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi III

Who was Charles Ponzi?  How did he begin this scheme that made him (in)famous?

Once again, Wikipedia provides a background to his life before he began his scheme.   Note that the beginning of his life details his story as an immigrant to America:

  " On November 15, 1903, he arrived in Boston aboard the S.S. Vancouver. By his own account, Ponzi had $2.50 in his pocket, having gambled away the rest of his life savings during the voyage. "I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me," he later told The New York Times.^[3] He quickly learned English and spent the next few years doing odd jobs along the East Coast, eventually taking a job as a dishwasher in a restaurant, where he slept on the floor. He managed to work his way up to the position of waiter, but was fired for shortchanging the customers and theft.

Ponzi aka "Charles Bianchi" under arrest circa 1910

In 1907, Ponzi moved to Montreal and became an assistant teller in the newly opened Banco Zarossi, a bank started by Luigi "Louis" Zarossi to service the influx of Italian immigrants arriving in the city. Zarossi paid 6% interest on bank deposits – double the going rate at the time – and was growing rapidly as a result. He eventually rose to bank manager. However, Ponzi found out that the bank was in serious financial trouble because of bad real estate loans, and that Zarossi was funding the interest payments not through profit on investments, but by using money deposited in newly opened accounts. The bank eventually failed and Zarossi fled to Mexico with a large portion of the bank's money.

Ponzi stayed in Montreal and, for some time, lived at Zarossi's house helping the man's abandoned family, while planning to return to the United States and start over. As Ponzi was penniless, this proved to be very difficult. Eventually he walked into the offices of a former Zarossi customer Canadian Warehousing and, finding no one there, wrote himself a check for $423.58 in a checkbook he found, forging the signature of a director of the company, Damien Fournier. Confronted by police who had taken note of his large expenditures just after the forged check was cashed, Ponzi held out his hands wrist up and said "I'm guilty." He ended up spending three years in the prison St. Vincent-de-Paul near Montreal. Rather than inform his mother of this development, he posted her a letter stating that he had found a job as a "special assistant" to a prison warden.

After his release in 1911 he decided to return to the United States, but got involved in a scheme to smuggle Italian illegal immigrants across the border. He was caught and spent two years in Atlanta Prison. Here he became a translator for the warden, who was intercepting letters from mobster Ignazio "Lupo the Wolf" Saietta. Ponzi ended up befriending Lupo. However it was another prisoner who became a true role model to Ponzi: Charles W. Morse. Morse, a wealthy Wall Street businessman and speculator, fooled doctors during medical exams, poisoning himself by eating soap shavings, toxins that left his body as quickly as the doctors left his bedside. Morse was soon released from prison. Ponzi completed his prison term the summer following Morse's release, having an additional month added to his term due to his inability to pay a $500 fine."

Note that Ponzi already was involved in criminal activities before the idea of the Ponzi scheme appeared.  We will discuss this pathology later.

As always, have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>>>>>>>>gene tausk

[edit]

The Great Charles Ponzi II

Let's continue with our conversation regarding Charles Ponzi.  I suppose before we talk about Charles Ponzi, we need to define what is a "Ponzi Scheme."

Well, let's turn to Wikipedia again:

"A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregisteredsecurities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi^[1] who became notorious for using the technique in early 1920. Ponzi did not invent the scheme (for example Charles Dickens' 1857 novel Little Dorrit described such a scheme decades before Ponzi was born), but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was based on the arbitrage ofinternational reply coupons for postage stamps; however, he soon diverted investors' money to support payments to earlier investors and himself."

    In other words, in a Ponzi scheme, the only real money that is "earned" by the investment pool is by people investing in the pool.

   Charles Ponzi's life was as interesting as the scheme that bears his name, however.  We will explore his life in the next post.

As always, have a great and fraud free day.

http://www.tauskvega.com

-------------->>>>>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi

At this point I should probably admit something - I really enjoy reading about fraud and fraudsters and the schemes they concoct.  Fraud is, after all, a form of a confidence crime, or a "con job" in the contemporary vernacular.  The person who creates a fraud scheme is a confidence man or, of course, a "con man."  As the name suggests, to be a con man, you have to gain the confidence of your victim.  You have to gain their trust and belief that you are working for their best interests while, at the same time, you are screwing them out of their hard earned money.

     Only certain people can be con men.  It takes a great deal of self belief and self confidence, not to mention a type of sociopathic and psychopathic personality, to be able to pull off a con job.  A con man has to stay one step ahead of his mark to achieve his goals and then, move onto the next one.  It is not an easy job.

     Make no mistake about it - although I admire the work and the schemes of con artists, the people who pull off these schemes are criminals, pure and simple.  They are stealing other people's money.  Instead of using a gun or other physical force, the con man uses his wits.  While this can be romanticized (and often is, witness movies like "The Sting" for an example of how Hollywood sometimes views this sort of thing), there is no denying that just like any other crime, there are victims.  Conjobs do not leave "victimless" crimes - just ask the former workers of Enron.

    But, like anyone who admires a good backstory, it is always interesting to look into cons and con jobs and find out more about them.

    And, for the next topic, we will take a break from talking about different types of frauds and talk about the person who ran a fraud scheme so grand and enormous in scope that today his name is synonymous with its imitators.

     I am referring to Charles Ponzi and the immortal "Ponzi Scheme."  Charles Ponzi and the crime that will forever bear his name is the subject of our discussions for the next posts.

As always, have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>>>gene tausk

Love is Cruel XIV

Well, we have seen the dangers of the "sweetheart scam."  People looking for love or companionship, online, find (usually) a "dating" service that offers a wide variety of beautiful women, each looking to find an American boyfriend (or husband).

The mark, after introductions, will find that the scam works generally in two ways.  The first, like the 419 scam, attempts to keep the mark going as long as possible.  The "girlfriend" first asks the mark for some money for basic expenses.  Then, as the relationship proceeds, the "girlfriend" attempts to visit the United States but needs money to get to the Embassy, money for interviews at the Embassy, money for transportation, money to stay at a hotel while in town, etc.

The second method is where the mark travels to the "girlfriend's" country.  He finds himself threatened with bodily harm unless he turns over money.  Sometimes, the threats involve the mark turning over credit cards, bank account information and other financial matters.

There are other ways in which the "sweetheart scam" unfolds, but these two methods are the basic ones.  Readers can view the previous two posts for advice on how to minimize the risk.

    This brings us to the end of the "sweetheart scam" for now.

    And, as promised, I don't like the term "Russian Mail Order Bride."  I lived in Moscow for a number of years and yes, while the "sweetheart scam" is employed in Russia, it is also employed in many other countries.  Let's just call it the "sweetheart scam" and leave it at that.

http://www.tauskvega.com

As always, have a great and fraud-free day.

--------------->>>>>>>>>>>>>>>gene tausk

Love is Cruel XIII

Let's face it - no one really likes to admit they were scammed in a "mail order bride" scheme.  Even among fraud schemes, this one is especially cruel.  As we discussed at the very beginning of this thread, even by fraud scams, this one is especially cruel.  And, we have not finished discussing this topic - like all fraud topics, this one is complex and involves many variations and trends.

     So, today we will discuss something which is common to all frauds, but especially the "sweetheart scam" - why should someone who is a victim go and talk about it?  As we stated, this is embarrassing.  Breakups and love relationships gone sour are hard enough, but adding the element of fraud can only make this even harder to talk about.  But, there are many reasons why these scams need to be exposed.

1.  First is the obvious.  If a person is a victim of a crime, he has the duty to report it to law enforcement.  This not only creates a record should something occur in the future with the same people, it also allows law enforcement to create a database about these types of scams.

2.  Second, if money was stolen or personal effects stolen, your insurance company may require a police report (obviously, the person needs to check with his insurance company).

3.  Third, remember that the more people who hear about these types of frauds, the greater the chance that these can be avoided by other people.

4.  Fourth, it allows law enforcement to track the fraudsters so hopefully, at some point, they can be caught and stopped.

  We will wrap this up tommorrow by talking about my distaste for the term "Russian Mail Order Bride."

   As always, have a great and fraud-free day.

www.tauskvega.com

------------------->>>>>>>>>>>>>>>>>>gene tausk

Love is Cruel XII

Well, as promised, we will be exploring today what happens when a person is asked to meet someone in person.  In other words, going to a foreign country to meet the "girlfriend."  Remember our previous discussion - there exist situations where the person is in a foreign country, meeting his "girlfriend" for the first time, and it turns out that the person is being extorted out of his money.  How does a person prevent this from happening?

First, only carry a limited amount of cash.  This is always important.

Second, make certain that you have people whom you trust who know where you are going, when you are going, and whom you are going to see.  They should expect a phone call from you (yes, pretty much every country in the world has cellphones now with multiple networks).  Further, if they do not get a phone call from you when you are supposed to call, there should be a plan of action as to how to react.

Third, make certain that all of your bank accounts and investments are locked down and cannot be changed by you when you are overseas.  Remember, some of the scammers involved in these operations are professionals who know how to get access to your accounts.

Fourth, be extremely wary when your "girlfriend" asks you to move from the location you select to another location.  As amorous as this may seem, it may be an invitation to a dangerous sitation.  Remember what I said about this at the beginning - I don't like giving love advice and do not like acting like a chaperon.  However, this is a blog about fraud and scams, not Ms. Lonelihearts or dating sites.  I am not going to advise the readers of this blog on how to conduct their love lives, only how to keep their money.

     Unfortunately, because the mail order bride scam is so prevalent, precautions such as this must be taken.

We will be wrapping up this discussion in the next few posts.

As always, have a great and fraud-free day.

------------->>>>>>>>>>>>>gene tausk

Love is Cruel XI

OK - back from my (well deserved) vacation.  Happy 85th Birthday to my great dad!  And now, back to the depressing world of Love is Cruel, aka the Sweetheart Scam.

     We are discussing how to prevent being a victim of these sweetheart scams.  We are now going to go over some ground rules when a person gets involved with an "international beauty" online.

1.  First, don't post your real email address.  Get a disposable email address just for this purpose.  If things begin to work out and you feel that this person may be genuine, you can always reveal your "real" email address.  Until then, keep it safe.

2.  Many dating sites will ask for a profile.  When giving your profile, just give the basics and give only general information about yourself.  Don't give specifics  about where you live or work.

3.  When you start getting responses to a profile or ad, be extremely cautious if a respondent brings up an issue of money.

4.  Be very wary of respondents who quickly press you to "meet" them in other chat rooms or exchange instant messaging information after only one or two meetings.  This should be at a later step.

5.  NEVER give anyone your bank account numbers, social security numbers, driver's license numbers, home address, phone number or credit card numbers.  Don't laugh and say "it will never happen to me.  I would never do this."  If no one did it I would be out of a job.

6.   When it comes to meeting someone personally, there are more steps that need to be taken, and we will discuss this more tommorrow.

     It's great to be back.

As always, have a great and fraud-free day.

http://www.tauskvega.com/

------------>>>>>>>>>>>>>>>>>gene tausk

Love is Cruel - Interlude

To the readers of my blog - I will be out of town for a few days and resume blogging when I return.  Expect a new post on or about July 11, 2011

As always, have a great and fraud-free day.


-------------->>>>>>>>>>>>>gene tausk

Love is Cruel X

OK - let's bite the bullet and discuss how this type of fraud can be avoided.

     First of all, it is important to acknowledge that finding a spouse or girlfriend overseas is obviously a little more difficult than finding one in your own culture.  Aside from the obvious problems of long-distance relationships, there are different cultures and expectations to take into consideration.  Add to this the problem that it will involve some expense, even in the age of the internet and instant communication (if you are going to get serious with someone, at some point you will need to meet them face-to-face).  Further, as always, serious relationships take some time.

     If a person considers all of the above, then the chances of fraud can be reduced right from the start.

     Once a relationship is started, however, then the person needs to examine the following:

1.     Is the person using an internet dating service?  If so, is there a fixed fee for the use, or are there constant "hidden" fees that appear at all times and for random events (i.e. are they charging you by the minute, claiming that you went beyond your authorized minutes, do you have to use the agency's own interpreters, can you only use the service at specific times, do unexpected charges appear on your bill, etc.?)  If this is the case, then clearly something is up.  There are many professional dating services that are fair and honest brokers that provide actual service for a reasonable fee.  Like any other service, some background checks should be done to investigate the service that a person will use.

2.   Once you meet a woman online, does she start asking for money quickly?  Does she start telling you about unexpected expenses in her life for which she needs help?  Do many of the conversations revolve around money?  If so, then this is a telltale sign that something is up.

3.    Ask to see real photos of her, not just photos that obviously were taken by professional photographers.

We will continue this later.

http://www.tauskvega.com/

Have a great and fraud-free day.


--------------->>>>>>>>>>>>>>>>gene tausk

Love is Cruel IX

I hope all my American readers had a good 4th of July.

    At this point, I have to be honest with my readers concerning a point about which it is difficult to write.  One of the main points of this blog is to not only share different types of frauds with my readers so they can best prepare themselves through education, but also how to avoid being a victim of fraud in the first place.  Unfortunately, in this situation, this also means that I need to play the role of a relationship counselor in addition to being an attorney and fraud examiner.  I would like to say that this is above my pay grade, but I suppose that would be a cop out.  So, let's ask the question: how does one avoid being a victim of the sweetheart scam?

     It is easy to look at these situations from a distance and say - "well, how could you NOT know she was scheming you?  I mean, she kept on asking for more money, she kept on having you come back for more, etc. etc."  But, this is not the answer.

   Remember once again - most sweetheart scams are designed to make the victim keep coming back for more.  The mark makes a trip to the "girlfriend's" home country, meets up with the girlfriend, has a good time, and pays for the girlfriend's expenses plus some "extra" expenses at the "girlfriend's" request (and no, I am not talking about prostitution.  I am talking about the "girlfriend" asking for expenses that "came up" during the time of the mark's visit - i.e. extra rent due, extra taxes due, etc.

   Also, remember, even before the mark gets to the "girlfriend's" country, the "girlfriend" could be asking for transportation fees, agency fees, emergency fees, etc.

     Here is the hard part - the mark is emotionally compromised because the "girlfriend" is playing on his emotions.  They are in a relationship, right?  Don't boyfriends help out their girlfriends?  She is not asking for a whole lot of money.  Just an unexpected expense.

   So - once again - how do I answer this?  What advice can I give to the lovelorn?

    Well, actually I do have some answers.  But, this will have to wait until tomorrow.  Until then, just remember what a good friend of mine (a family law attorney) told me - a relationship is a transaction, just like any business transaction.  She is right, and this does not mean that she is heartless, quite the contrary.  And, thinking in this manner helps us to think clearly in these circumstances.

http://www.tauskvega.com/

Have a great and fraud-free day

------------->>>>>>>>>>>>>>>gene tausk

Love is Cruel VIII

We are exploring the more violent part of the sweetheart scam - when the mark is in the "girlfriend's" home country and is being extorted for funds.

     As discussed, in the more extreme version of the scam, the mark has flown to the "girlfriend's" country and is now being extorted, under violent conditions.  The mark is sometimes, literally, held up at gunpoint.  Sometimes the mark finds himself being charged with phony crimes by the local police or judges, once again having been bought off by the "girlfriend" or the "girlfriend's" family.

    In today's world of instant money transfers and online banking, this is no simple extortion of funds from the mark's wallet.  The "girlfriend" and her accomplices can easily gain access to the mark's life savings, bank accounts or even stocks and 401k plans.  The technology that enables instant communications and makes banking easy also lends itself to this kind of extortion.

     Once again, the entire purpose of the "girlfriend" and the "girlfriend's" accomplices is to get the mark to her home country, where she has the advantage, and fleece the mark for everything he has.  As stated, this is the dark side of the sweetheart scam (as if there is an upside to all of this).

    This goes against the original statement, of course, that the sweetheart scam is like the 419 scam in that the purpose of the scam is to continue the scam as long as possible.  Clearly, once the mark is robbed, he will not be coming back.  But, like all frauds, the sweetheart scam is sometimes used by criminal gangs and organizations who will take what they can get as fast as possible.  Also, in certain countries, criminal gangs and organizations control aspects of law enforcement and the courts, so they have no fear of any kind of prosecution.  In this respect, their are exceptions to the way the sweetheart scam works.

   We will continue our conversations the day after tomorrow.  I wish everyone a happy Independence Day.

http://www.tauskvega.com/

Have a great and fraud free holiday.

------------>>>>>>>>>>>>>>>>gene tausk

Love is Cruel VII

Remember, the purpose of the sweetheart scam is to keep the mark coming back for more, just like the 419 scam.  The more the mark can stay on the hook, the more the "girlfriend" can keep the money flowing.

     However, some sweetheart scams are designed to get the mark to the "girlfriend's" country and, once there, violently extort money from him.

     We have already seen how, once contact is established, at some point the "sweetheart" may invite the mark to her country so she can use him for money.  However, some sweetheart scams, when the "girlfriend" and her associates feel or believe that the mark is wealthy or may catch on sooner or later as to what is going on, may just decide to force the mark to pay money once he is away from the United States.

     How it works is, of course, simple.  Once the mark arrives to meet his "girlfriend," or at some point after they have met, the "girlfriend" and her associates will, at threat of gunpoint, demand money and financial information from the mark.  It is, in essence, a glorified form of kidnapping.

     The mark is completely helpless.  He is in a strange country, where he usually does not speak the language or know anything about the law enforcement or courts (and it is likely that the legal system is corrupt), and cannot navigate his way around.  Not only is there a terrifying physical danger, there is also the psychological reality that the mark is in a location and place completely out of his frame or reference and understanding and is at the mercy of people whom he thought he could trust.

     We will continue this discussion tommorrow.

http://www.tauskvega.com/

------------->>>>>>>>>>>>>>>>>>>gene tausk

Love is Cruel VI

We were discussing that going to the foreign country and spending money on the "girlfriend" is a one-time thing.

     Remember the primary purpose of the sweetheart scam - it is not to get married to the foreigner (after all, once that happens the scam is more or less over, but that is for another discussion).  The primary purpose is to get the mark to continue paying money - just like the 419 scam.  The "girlfriend" gets the mark to keep coming back for more.

    So, at this point the mark is visiting the girlfriend's country and is spending money on her.  He is putting her up at expensive hotels, buying her expensive meals and paying for the "agency" who introduced them.  Also, let's not forget that the mark is also probably buying for her expensive gifts as well.  Remember what I said at the very beginning of these posts on the sweetheart scam - it is especially cruel and unforgiving as it relies on the age-old human desire for companionship.  This desire has millions of years of evolution behind it and scammers know that people have this basic human need and exploit it.

    After the initial visit, usually when the mark is getting ready to leave, there is talk about taking the relationship to the next level, sometimes even marriage proposals.  At this point, the mark will have to return home to the United States, but the "girlfriend" will still be able to continue the scam.  After all, now that the mark has visited his "girlfriend" and has gotten to know her (usually, of course, involving sex), his emotions are even more easily manipulated.

    So, once the mark returns home, the emails and phone calls continue, along with the pleas for money.  The "girlfriend" needs help with unexpected bills, applying for the visa, applying for transportation to the city where the Embassy is located, etc.  The scam continues, with more and more demands for money.  Let's not forget that in many countries, U.S. currency is still highly valued and if the scammers can get $3 or $4 thousand dollars from the mark, this is an excellent salary.

    Tomorrow, we will discuss when the visit to the "girlfriend's" country can take a violent turn.

http://www.tauskvega.com/

As always, have a great and fraud-free day.

-------------->>>>>>>>>>>>>>>>>gene tausk